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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K



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(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended December 31, 2003



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from              to



Commission file number 0-26482



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TRIKON TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)



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DELAWARE

(State or other jurisdiction of incorporation or organization)



Ringland Way,

Newport, Gwent NP18 2TA, United Kingdom

(Address of principal executive offices)



95-4054321

(I.R.S. Employer Identification No.)



(Zip Code)

44 (0)1633 414 000



Registrants telephone number, including area code



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Securities registered pursuant to Section 12(b) of the Act:



|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange on which registered
|NONE                |  | NONE                                     



Securities
registered pursuant to Section 12(g) of the Act:



Common
Stock, No Par Value

(Title of Class)



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Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).    x  Yes ̈No



As of June 30, 2003, the last
business day of our most recently completed second quarter, there were 14,051,760 shares of common stock outstanding. The aggregate market value of our common stock held by non affiliates, based on the closing price of our common stock on June 30,
2003 as reported on the Nasdaq National Market was approximately $49,883,748. Common stock held by our officers and directors and by each person owning, to our knowledge, 5% or more of our common stock are excluded because such persons may be deemed
affiliates of Trikon. This determination of affiliate status is not necessarily determinative for other purposes.



As of February 24, 2004, the registrant had outstanding 15,741,671 shares of Common Stock.



Documents Incorporated by Reference:None.



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TRIKON TECHNOLOGIES, INC.



Annual
Report On Form 10-K For The Year Ended December 31, 2003



Index



|                                                  |  |                                                                                                |  |     
|------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|                                                  |  |                                                                                                |  | Page
|SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS |  | 2                                                                                             
|                                                  | 
|TRADEMARKS                                        |  | 2                                                                                             
|                                                  | 
|PART I                                            |  | 3                                                                                             
|                                                  |  |                                                                                               
|ITEM 1.                                           |  | BUSINESS                                                                                       |  | 3   
|ITEM 2.                                           |  | PROPERTIES                                                                                     |  | 10  
|ITEM 3.                                           |  | LEGAL PROCEEDINGS                                                                              |  | 10  
|ITEM 4.                                           |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            |  | 10  
|                                                  | 
|PART II                                           |  | 11                                                                                            
|                                                  |  |                                                                                               
|ITEM 5.                                           |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          |  | 11  
|ITEM 6.                                           |  | SELECTED FINANCIAL DATA                                                                        |  | 11  
|ITEM 7.                                           |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 13  
|ITEM 7A.                                          |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     |  | 28  
|ITEM 8.                                           |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    |  | 28  
|ITEM 9.                                           |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           |  | 28  
|ITEM 9A.                                          |  | CONTROLS AND PROCEDURES                                                                        |  | 28  
|                                                  | 
|PART III                                          |  | 29                                                                                            
|                                                  |  |                                                                                               
|ITEM 10.                                          |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                            |  | 29  
|ITEM 11.                                          |  | EXECUTIVE COMPENSATION                                                                         |  | 31  
|ITEM 12.                                          |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |  | 35  
|ITEM 13.                                          |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                 |  | 37  
|ITEM 14.                                          |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                         |  | 37  
|                                                  | 
|PART IV                                           |  | 38                                                                                            
|                                                  |  |                                                                                               
|ITEM 15.                                          |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ONFORM 8-K                                |  | 38  



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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 based on the beliefs of our
management as of the filing date of this Annual Report on Form 10K. These forward-looking statements, which include statements about our development efforts in the field of low k dielectrics, acceptance of our technological innovations and products,
our business strategy, the general conditions of the semiconductor industry, our capital requirements and funding sources, our ability to cut costs and manage our business, and our expectations and objectives regarding future expected operating
results, revenues and earnings are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements. Words such as
expects, anticipates, intends, plans, believes, seeks, estimates and other similar expressions or variations of such words are intended to identify these
forward-looking statements.



Factors that effect these forward
looking statements include, without limitation, the cyclical nature of the semiconductor industry and the continuing and protracted downturn in the semiconductor industry, the long sales cycle and implementation periods, the acceptance of our
technologies and products, our ability to respond to technological change, our dependence on a limited number of customers and other factors discussed under the heading Risk Factors and elsewhere in this Annual Report on Form 10-K. The
reader should also consult the cautionary statements and risk factors listed from time to time in the reports we file with the Securities and Exchange Commission.



All forward-looking statements included in this Annual Report on Form 10-K are based on information available to us as of
the filing date of this Annual Report on 10-K, and we assume no obligation to update any such forward-looking statements. Stockholders are cautioned not to place undue reliance on such statements.



TRADEMARKS



TRIKON, ORION, OMEGA,
OMEGA ETCH, OMEGA 2, SOFT SPUTTER ETCH, PLANAR 200, FORCEFILL, FLOWFILL, HI-FILL, SIGMA, ELECTROTECH, PLASMAFAB, SCIF, DRY DIP, FxP, and THE PLASMA COMPANY are our trademarks and are registered in one or more of the territories in which we sell our
products. M0RI, LOW-K FLOWFILL, C3M and PLANAR are our trademarks, and we have applied for trademark registration of these and other marks in the major sales territories in which we operate.



All other trademarks, service marks, or trade names referred to in this
Annual Report on Form 10-K are the property of their respective owners.



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PART I



ITEM 1. BUSINESS



Recent Developments



On March 10, 2004, we announced the departure of Dr.
Jihad Kiwan as our President and Chief Executive Officer. Pursuant to the terms of his employment agreement, Dr. Kiwan resigned from the Board of Directors effective as of such date. Dr. John Macneil, our Chief Technology Officer, will serve as our
acting President and Chief Executive Officer and will be assisted by a newly formed Executive Committee of the Board of Directors consisting of Nigel Wheeler and Richard Conn. On March 10, 2004 Dr. In-Kil Hwang resigned from our Board of Directors.
In addition on March 12, 2004, Trikon and Richard Deep, formerly our Chief Operating Officer, determined to end their relationship.





Overview



Trikon Technologies Inc (Trikon or the Company) was founded in 1987 as Plasma & Materials
Technologies, Inc (PMT), a California corporation. In August 1995, we completed our initial public offering of common stock. In November 1996, we acquired Electrotech Limited and Electrotech Equipments Limited (Electrotech),
both United Kingdom companies that were significantly larger than PMT and the Company was renamed Trikon Technologies, Inc. In 2002, the Company reincorporated into Delaware as Trikon Technologies, Inc. Our principal executive offices are located at
Ringland Way, Newport, South Wales NP18 2TA, United Kingdom, and our telephone number is 44 (0) 1633-414-000. Our head office and management team together with our principle operations are based in the United Kingdom.



We design, manufacture, market and sell advanced production equipment used to
process semiconductor wafers for the manufacture of integrated circuits. These circuits and devices are key components in most advanced electronic products, such as telecommunications devices, consumer and industrial electronics and computers.



Our products carry out processes to clean, deposit and/or
remove materials on the surface of a wafer. In particular, our products are used for chemical vapor deposition (CVD), physical vapor deposition (PVD) and etch processes. We sell, install and service our systems to semiconductor manufacturers
worldwide and our existing customers include a wide range of semiconductor companies, including large independent device makers. We use a direct sales model in all of our markets except in Asia, where we use a combination of direct sales and
distributors.



Our mission is to provide technologically
innovative, high quality semiconductor manufacturing equipment that can provide a competitive advantage for our customers. Our application focus will be the critical steps in memory and power integrated circuits, together with the development of our
low k technologies.



We make available free of charge through
our website, www.trikon.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically submitted to the
Securities Exchange Commission. Our internet website and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K.



Our Products



Integrated circuits are built on a silicon or other material wafer base, and include a variety of circuit components, such
as transistors and other devices, that are connected by multiple layers of wiring (interconnects). To build an integrated circuit, the transistors, capacitors and other circuit components are first created on the surface of the wafer by performing a
series of processes to modify, deposit and remove selected film layers. Similar processes are then used to build the layers of wiring structures on the wafer.



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Our products are used in these processes to create the integrated circuit, which includes among many
different processes, the following basic operations to create interconnect layers:



| |  | deposition, or adding material to a substrate, typically a silicon wafer;
| | - | -------------------------------------------------------------------------



| |  | patterning, or printing a circuit outline on the substrate; and
| | - | ---------------------------------------------------------------



| |  | etching, or removing layers, of material from the substrate.
| | - | ------------------------------------------------------------



These, and other processes, are repeated in multiple cycles, building up microscopically thin layers, thereby interconnecting countless transistors.



We supply production equipment for two of the most typical deposition
techniques, chemical vapor deposition and physical vapor deposition, and plasma etching equipment for selective material removal.



Our proprietary technologies and leading-edge wafer processes capabilities enable our customers to perform new and advanced fabrication processes, thereby
improving their products.



Chemical Vapor Deposition



Chemical vapor deposition is a process that can be used
to deposit thin films of dielectric (insulating) and, to a lesser extent, conductive materials. During the CVD process, gases that contain atoms of the material to be deposited chemically react to form a thin film of solid material on the wafer.
Four types of dielectric layers deposited by CVD include:



| |  | Shallow Trench Isolation (STI), to isolate one transistor from another;
| | - | -------------------------------------------------------------------------



| |  | the pre-metal dielectric (PMD), the insulating layer between the active components and the first interconnect metal layer;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| |  | the inter-metal dielectric (IMD), the insulating layer between the different metal layers; and
| | - | ------------------------------------------------------------------------------------------------



| |  | the final passivation layer that seals the completed device from atmospheric moisture.
| | - | --------------------------------------------------------------------------------------



The most common dielectric films deposited by CVD are silicon dioxide, which is used for the PMD and IMD layers, and silicon nitride, which
is used for the final passivation layer. As semiconductor devices get smaller and closer together, there is anticipated to be a requirement for more efficient insulating materials (low k dielectrics) for IMD and PMD applications.



Our CVD products, Planar fxp and Planar 300 for Flowfill, low k
Flowfill and ORION deposition are targeted towards the IMD and PMD markets and utilize our proprietary technologies. These products are cluster tools with up to six process module positions.



The IMD and PMD markets require a suitable insulating material to separate
the many levels of microscopic wiring in an integrated circuit. The most common insulating material is silicon dioxide, which, when deposited by conventional techniques, is unable to fill small gaps. Addressing the problems of conventional CVD
technology our patented Flowfill and low k Flowfill products are primarily directed towards the gap fill market and are used to deposit a planarizing layer that in many cases may be used without the need for chemical mechanical polishing. Our
Flowfill process is a patented CVD technology that was developed to form high quality silicon dioxide layers that possess the properties of both gap fill and a high degree of planarization. When a high degree of planarization is reached, the upper
surface of the layer is relatively flat, irrespective of the topography of the surface covered. Flowfill can fill features less than 0.04 micron wide with a less than 8:1 height to width ratio and simultaneously achieve a very high degree of
planarization for large gaps up to 20 microns.



Our low k
Flowfill product has similar gap filling and planarization properties to the Flowfill product but also provides a low k dielectric process, which enables device manufacturers to speed up the performance of their



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integrated circuits. Our low k Flowfill technology is in production with a tunable dielectric constant (dielectric constant or k
value) of between 2.8 and 3.3 and has the capability of achieving a dielectric constant of 2.5.



Advanced logice device makers are moving from using aluminum as the main conducting material for the interconnect to Copper and need to complement this
transition with the use of more efficient dielectric films or low k films. Our ORION technology is an ultra low k offering aimed at advanced copper damascene applications where a k value of 2.5 or below is required. ORION can be deposited at
dielectric constants of both 2.5 and 2.2, values, which have been independently verified. Our internal measurements on films deposited by the ORION product suggest that the k value can be reduced to 1.8. The ORION films are deposited using the
Planar 300 system, a bridge tool that can process both 200mm and 300mm wafers. This tool has six process module positions and is also capable of running Flowfill and low k Flowfill processes, therefore offering customers a progression path from
Flowfill to ORION technology at both 200 and 300 mm production.



Physical Vapor Deposition



Physical vapor
deposition is a process used to deposit conducting, liner and barrier metal layers on an integrated circuit. One of the primary PVD methods is sputtering, a process in which an electrical discharge creates ions of an inert gas, such as argon, which
are then accelerated in a vacuum at a target typically composed of pure metal or metal compound, such as aluminum, aluminum compounds, tantalum or copper. The target atoms are sputtered away and deposited on the wafer to form a thin film. Thin
conductive films, when patterned by lithography and etching, are used to wire an integrated circuit. These sputtered thin films consist of:



| |  | the bulk conducting layers;
| | - | ---------------------------



| |  | the barrier and liner metal layers to prevent diffusion or reactions between metals and silicon regions; and
| | - | ------------------------------------------------------------------------------------------------------------



| |  | the seed layer for electroplating.
| | - | ----------------------------------



Our Sigma fxP systems are used to sputter uniform layers of pure metals or metal alloys and metal compounds such as oxides or nitrides. These
products are cluster tools based on industry standard robotics platforms.



Sigma is designed to be one of the cleanest PVD systems on the market, which is a key technology requirement for sputtering the wafer with as high quality film as possible. Various process chambers are available for
specific functions. In particular, there are advanced PVD chambers for depositing high quality barrier and liner layers for advanced metalization structures. These consist of the long throw Hi-Fill and ionised metal Advanced
Hi-Fill PVD chambers for improved barrier and liner deposition into high aspect ratio structures and an process module for the most advanced titanium nitride barrier layers which is called an MOCVD module. A Forcefill chamber is also available which
fills contact holes on semiconductor wafers with deposited aluminum alloys by applying heat and isostatic high pressure. Additional chambers consist of pre heat and sputter etch. We believe that the Sigma systems have the lowest cost of ownership
compared to our main competitors, and cost of ownership is an important factor for integrated circuit manufacturers



We are primarily targeting both memory and power device makers and barrier and liner applications for advanced silicon device production. For the rapidly
growing power device market, we support both front side interconnect and backside solder metal applications, minimizing operating costs by offering same-type equipment for the entire metal module. We also supply technology for the emerging Bulk
Acoustic Wave (BAW) market, a technology driven sector for next generation communication devices. BAW devices require very uniform deposition of piezoelectric films and we have developed intellectual property in this arena.



Plasma Etch



Plasma etch is a process that removes precisely defined patterns from the
wafer surface by chemically converting exposed portions of the surface into a gaseous by-product that is pumped away from the process



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chamber. Almost all deposition processes create a film covering the entire wafer surface. Many layers are required only in selected parts of the wafer, for
example to create wires of metal that may be created by a series of steps including a Plasma etch step. Firstly, the entire wafer surface is covered with sputtered aluminum alloys and its associated barrier layers. These conductive layers are then
coated with photo resist and are exposed to the wiring pattern during the photolithography process. Plasma etching is then used to remove the exposed conductive layer, thus replicating the wiring pattern. The metal remains in place under the
protective photo resist, which is then stripped off.



Our Omega
plasma etch system is available on two platforms as the Omega fxP and a single chamber Omega 201. The Omega fxP offers up to 6 process modules combined with tools for wafer alignment and cool-down and two vacuum cassette stations.
Multiple chambers provide high throughput for the high volume user or the option to mix and match different plasma sources so that advanced sequential etching processes can be addressed. The Omega 201 features our plasma source
technologies in a single chamber format that combines high performance etching with small footprint and low costs. These attributes make the tool particularly well suited to cost-sensitive manufacturing of silicon integrated circuits, compound
device makers and to the emerging photonics industry.



Both
platforms support our three main plasma sources, our M0RI etch technology (MORI), Plasma Enhanced Reactive Ion Etch (PERIE) and Inductively Coupled Plasma (ICP). Additional modules may also be added that provide secondary functions, such as post etch
corrosion processes. M0RI offers the highest plasma density that provides process solutions for the most advanced polysilicon, oxide and low k etch requirements. The ICP is used extensively for high-density aluminium and polysilicon etching as well
as for a broad range of front and back face processing on compound semiconductors. The PERIE offers medium plasma density for silicon and dielectric etching where the feature sizes are less challenging. We have recently launched a Deep Silicon (DSi)
etch module for the emerging MEMS market utilizing the industry standard Bosch process. The module features magnetic shaping of the plasma to reduce etch non-uniformities. Deep Silicon etch techniques are used in myriads of applications such as
accelerometers and gyros, tilting mirrors, vibrating resonators, valves, pumps and turbines.



Marketing, Sales and Customer Support



We sell, install and service our systems to semiconductor manufacturers worldwide and our focus is upon building positive long-term relationships with our customers. We offer highly reliable products that give our
customers a competitive edge through technology or cost advantage, comprehensive field support and a responsive parts replacement and service program. Our sales are divided among three geographic regions  Europe, North America and
Asia. Set forth below in tabular format is the geographic distribution of our revenue for the past three fiscal years, expressed as a percentage of sales.



|     |  |        |   |  |               |   |  |      |  
|---- |  | ------ | - |  | ------------- | - |  | ---- | -
|     |  | Europe |   |  | North America |   |  | Asia |  
|2003 |  | 56     | % |  | 39            | % |  | 5    | %
|2002 |  | 64     | % |  | 33            | % |  | 3    | %
|2001 |  | 60     | % |  | 32            | % |  | 8    | %



In Europe, we market
and sell our products primarily through our direct sales and service operations in the United Kingdom, the Netherlands, France and Germany. In North America, we also market and sell our products through our direct sales organization supported by
regional service operations. In Asia we combine direct sales, agency and distributor arrangements. In South Korea, we market and sell our products directly. In Japan we use a local distributor with support from our United Kingdom and South Korea
offices. In Taiwan and China and the other South Eastern Asian markets we use the services of a regional agent supported in China and Taiwan by a direct sales presence.



Our total revenue includes amounts from certain individual customers that exceed 10% of our total revenue. For the year
ended December 31, 2003 three customers exceeded 10% of revenues for the year, with Sarnoff



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Corporation, Infineon AG and Philips accounting for 16%, 13% and 10% respectively. For the year ended December 31, 2002, Phillips was the only customer who
exceeded 10% of our revenue, accounting for 11% of our revenue and for the year ended December 31, 2001 Infineon AG represented 17% and Philips represented 15% of total revenue for the year. Our largest customers may vary from year to year depending
upon, among other things, a customers budget for capital expenditures, plans for new fabrication facilities and new product introductions.



Our sales are not usually seasonal in nature but are cyclical due to the buying patterns of major semiconductor manufacturers. These buying patterns are
based on several factors including anticipated market demand for integrated circuits, the development of new technologies and general economic conditions.



We provide customers with evaluation systems of our new products as part of our sales efforts. The provision of evaluation systems is an important step in
the lengthy sales cycle. The average duration of an evaluation period for systems can be extensive and can exceed one year. Consequently, as we expand our sales efforts, particularly in the low k market, we believe that a significant increase in our
investment in demonstration and evaluation systems will be needed.



We believe that a comprehensive support program is an essential component for each customer. We have developed an experienced central customer support group in addition to regional based service and support staff at local centers who are in
close contact with our customers and provide comprehensive support programs. We also have a dedicated training suite housing a clean room with complete systems and the latest generation training aids.



Research, Development and Engineering



We believe that our future success will depend primarily upon our ability to
continue to improve our systems and technologies and to develop new products that compete effectively on the basis of technical performance and total cost of ownership. These technologies and systems will also need to meet customer requirements and
emerging industry standards. Accordingly, we devote a significant portion of our personnel and financial resources to research and development programs and seek to maintain close relationships with our customers in order to remain responsive to
their product needs. As of December 31, 2003, we employed 63 professional and technical personnel in research, development and engineering and our expenditure for research and development during the fiscal years 2003, 2002 and 2001 were $9.7
million, $10.7 million and $9.7 million, respectively.



Our
research and development group is responsible for identifying new technology applications and developing processes to meet customer requirements. Major research and development programs for CVD address deposited dielectrics for PMD, IMD and STI gap
fill applications and ultra low k dielectrics for copper damascene applications. We are focusing on high aspect ratio etching using our MORI technology in our etch group. Our applications focus in PVD and MOCVD are barrier/liner/seed applications
and advanced oxide including backside metallization and thin wafer handling. Resources will also be focused in 2004 to identify and implement product cost reduction programs that can favorably impact our gross margin



Manufacturing, Raw Materials and Supplies



Our manufacturing operations consist of the manufacture, assembly and
testing of components and modules and their integration into finished systems at our Newport, United Kingdom facility, where substantially all of our long-lived assets are maintained. We purchase a significant number of parts including mechanical
and electrical components from a variety of suppliers. We seek to qualify multiple suppliers for our purchased components, although this is not possible for all components and purchased assemblies and therefore any failure by a supplier to perform
could have a short-term adverse effect on our operating results. Most significantly our Sigma® fxP, Planar
fxP and Omega fxP systems (cluster tools) are designed around an automation module supplied
by Brooks Automation. Due to the high cost of these modules we keep very few in inventory. If Brooks Automation fails to deliver the component on a timely basis, delivery of our cluster tools will be delayed and sales may be lost. If Brooks
Automation is unable to deliver any such modules for a prolonged period of time, we will have to redesign our cluster tools so that we may utilize other wafer transport systems.



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Our manufacturing facility operates at the high levels of cleanliness required in the semiconductor
industry. Our manufacturing and final test area is class 1000 representing a high level of cleanliness (a class is a standard definition which represents a number of particles per million, the smaller the number of particles the cleaner the
facility). We also support our development and sales process with a class 100 engineering clean room and a class 10 processes and product demonstration room. We also have a dedicated training suite of classrooms and a clean workshop stocked with our
products, both current and former generations, where we are able to train our own and our customers engineers.



We also operate two additional sites near our Newport facility where assemblies are made, a sheet metal fabrication workshop producing enclosures, panels
and other parts and a CNC machinery center, producing chamber components and other parts and wafer transport assemblies. In order to ensure that the CNC facility remains competitive in both quality and price, and to help cover fixed costs, it also
produces products for third parties. Revenue associated with this facility that is not related to the semiconductor equipment business was approximately $0.9 million in the year ended December 31, 2003 and $1.2 million in the year ended December 31,
2002.



Competition



The markets we serve are highly competitive and subject to rapid
technological change. Historically, new technologies have only gained acceptance when industry leaders have concurrently adopted such new technologies. Significant competitive factors include timing of new product offerings, system performance, cost
of ownership, size of installed base, depth and breadth of product line and customer support.



We face significant competition from various suppliers of systems that utilize similar or alternative technologies. Competitors range from very large, well capitalized corporations with a diversified product portfolio
to smaller companies that compete with a single innovative product. However, many of our competitors are substantially larger companies, some with broader product lines. They have well-established reputations in the markets in which we compete,
greater experience with high volume manufacturing, broader name recognition, substantially larger customer bases, and substantially greater financial, technical, manufacturing and marketing resources.



We have granted non-exclusive, worldwide, paid-up licenses of our M0RI
technology and Force Fill PVD technologies to Applied Materials and granted a non-exclusive, worldwide, paid-up license of our M0RI technology to Lam Research. As a result, in the future our PVD and etch products may have to compete with products of
Applied Materials or Lam Research based on our technologies. The license agreements do not preclude us from utilizing, or licensing to other third parties, the licensed technologies.



Backlog



As of December 31, 2003, our backlog was approximately $6.2 million, as compared to approximately $8.5 million at December 31, 2002. Our backlog consists
of system purchase orders that provide for delivery within the following year and the unearned revenue of systems previously shipped. Backlog includes only systems for which a purchase order has been received and a delivery date assigned. Orders are
typically subject to cancellation or delay by the customer with limited or no penalties. Because of possible changes in delivery schedules and cancellations of orders, our backlog at any particular date is not necessarily representative of actual
sales for any succeeding periods. The stated backlog is not necessarily indicative of sales for any future period nor is a backlog any assurance that we will realize profit from filling these orders.



Intellectual Property



We believe that our competitive position is significantly dependant upon skills in engineering, manufacturing, customer
support and marketing in addition to our patent position. Protection of our technological assets by obtaining and enforcing patents is important and we file patent applications in the United Kingdom,



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United States and other countries as appropriate. We currently hold 44 U.S. patents with patents issued and pending in key markets around the world. The
issued patents and any subsequent issued patent arising from our pending applications expire between 2009 and 2022.



There can be no assurance that patents will be issued on our pending patent applications or that competitors will not be able to legitimately ascertain
proprietary information embedded in our products that is not covered by patent or copyright. In such case, we may be precluded from preventing the competitor from making use of such information. In addition, should we wish to assert our patent
rights against a particular competitors product, there can be no assurance that any claim in any of our patents will be sufficiently broad nor, if sufficiently broad, any assurance that our patent will not be challenged, invalidated or
circumvented, or that we will have sufficient resources to prosecute our rights.



In the normal course of business, we receive inquiries regarding possible patent infringement. In dealing with such inquiries, it may become necessary or useful for us to obtain or grant licenses or other rights.
However, there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms. If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on commercially
reasonable terms and/or successfully prosecute or defend our position, our business, financial condition and results of operations could be materially and adversely affected.



Environmental Matters



We are subject to a variety of rules and regulations relating to the use, storage, discharge and disposal of hazardous chemicals and gases used during
customer demonstrations and in research and development activities. The United Kingdom adopted a new and comprehensive environmental law known as the Environmental Act 1995, which, among other things, deals with the allocation of responsibility for
the clean up of contaminated property and expands potential liability with respect to the remediation of such contamination. We lease a number of facilities in the United Kingdom, and failure to comply with present or future regulations could result
in substantial liability, suspension or cessation of our operations, restrictions on our ability to expand at our present locations, or requirements for the acquisition of significant equipment or other significant expense. To date, compliance with
environmental rules and regulations has not had a material effect on our operations. We believe that we are in material compliance with all applicable environmental rules and regulations and are in compliance with ISO14000 environmental standards.



Employees



As of December 31, 2003, we had 266 full-time employees and contractors,
including 63 engaged in research, development and engineering.



None of our employees are covered by a collective bargaining agreement and we consider our relations with our employees to be good.



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ITEM 2. PROPERTIES



Certain
information concerning our principal properties at December 31, 2003 is set forth below:



|                              |  |                                      |  |                                                                                 |  |               |  |                  |  |                 
|----------------------------- |  | ------------------------------------ |  | ------------------------------------------------------------------------------- |  | ------------- |  | ---------------- |  | ----------------
|Location                      |  | Type                                 |  | Principal Use                                                                   |  | SquareFootage |  | PropertyInterest |  | LeaseExpiry Date
|Newport, United Kingdom       |  | Office, Manufacturing & Laboratories |  | Headquarters, Manufacturing, Sales and Customer Support, Research & Engineering |  | 110,000       |  | Leased           |  | March 2010      
|                              |  |                                      |  |                                                                                 | 
|Cwmfelin-fach, United Kingdom |  | Office, Manufacturing and Warehouse  |  | Manufacturing of Components                                                     |  | 20,000        |  | Leased           |  | November 2004   
|                              |  |                                      |  |                                                                                 | 
|Bristol, United Kingdom       |  | Office, Manufacturing & Warehouse    |  | Manufacturing of Components                                                     |  | 9,000         |  | Leased           |  | March 2010      
|                              |  |                                      |  |                                                                                 | 
|Orange County, USA            |  | Office                               |  | North American Headquarters, Sales & Support                                    |  | 1,600         |  | Leased           |  | September 2004  



We have a number of
smaller properties and field offices located in the United States, the United Kingdom, Germany, France and South Korea. We believe that our properties adequately serve our present needs.



ITEM 3. LEGAL PROCEEDINGS



As of
March 3, 2004 there were no material pending legal proceedings to which our subsidiaries or we are a party. From time to time we become involved in ordinary, routine or regulatory legal proceedings incidental to our business.



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of our stockholders during the quarter ended December 31, 2003.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, AND RELATED STOCKHOLDER MATTERS.
|------- | -----------------------------------------------------------------------



Market for the Registrants Common Equity



Our Common Stock trades on the Nasdaq National Market under the symbol TRKN. The quarterly high and low closing
sale prices for Common Stock as reported by the Nasdaq National Market for the periods indicated below are as follows.



|               |  |      |       |     |   |      
|-------------- |  | ---- | ----- | --- | - | -----
|               |  | High |       | Low
|2002           |  |      |       |     |   |      
|First Quarter  |  | $    | 15.90 |     | $ | 10.14
|Second Quarter |  | $    | 15.02 |     | $ | 7.10 
|Third Quarter  |  | $    | 9.13  |     | $ | 4.01 
|Fourth Quarter |  | $    | 7.10  |     | $ | 3.25 
|               |  |     
|2003           |  |      |       |     |   |      
|First Quarter  |  | $    | 5.69  |     | $ | 3.23 
|Second Quarter |  | $    | 4.07  |     | $ | 2.80 
|Third Quarter  |  | $    | 7.04  |     | $ | 3.64 
|Fourth Quarter |  | $    | 7.40  |     | $ | 5.19 



As of March 3, 2004,
there were 200 holders of record of our common stock. On March 3, 2004, the closing price of the Common Stock as reported on the Nasdaq National Market was $5.93 per share.



We have never declared or paid dividends on the Common Stock and we do not expect to pay dividends on our common stock in
the foreseeable future.



The information required by this item
regarding equity compensation plans is incorporated by reference to the information set forth in item 12 of this Annual Report on Form 10-K.



Unregistered Sales of Registrants Equity Securities During Last Fiscal Year



On October 22, 2003 we sold 1,400,000 shares of our common stock and warrants to purchase 350,000 additional shares of
common stock with an exercise price of $6.25 per share in a private transaction under rule 506 of the Securities Act of 1933, as amended, with Special Situations Fund III LP and certain of its affiliated funds. The gross proceeds of the sale were
$7.0 million and our costs amounted to approximately $0.5 million. Oppenheimer & Co, Inc (the placement agent) managed the private placement. The placement agent received in addition to certain cash consideration, a warrant to
purchase up to 52,500 shares of common stock at an exercise price of $6.50 per share



ITEM 6. SELECTED FINANCIAL DATA



The following selected consolidated financial data are qualified by reference to and should be read in conjunction with our consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial
Condition and Results of Operations, which are included elsewhere in this report. The selected consolidated financial data set forth below as of December 31, 2003, and 2002 and for the years ended December 31, 2003, 2002, and 2001 have been
derived from our audited financial statements included elsewhere in this annual report. The selected consolidated financial data set forth below as of December 31, 2001, 2000 and 1999 and for the years ended December 31, 2000 and 1999 have been
derived from our audited financial statements that are not included in this annual report.



As discussed in the Managements Discussion and Analysis of Financial Condition and Results of Operations, we changed our accounting policy with respect to revenue recognition in the year ended
December 31, 2001. In accordance with Accounting Principles Board Opinion 20, we accounted for the change as a cumulative effect on the prior years resulting from the change to a different revenue recognition policy. As a result, the selected
consolidated financial data for the periods ending on and before December 31, 2000 have not been restated, but pro forma revenue, net income and earnings per share are included as a footnote to the selected consolidated data.



11



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|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------ | - |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                              |  | Year Ended December 31,                                      |        
|                                                                                                                              |  | 2003                                                         |         |   | 2002 |   |         | 2001 |  |   | 2000   |   |  | 1999 |        
|                                                                                                                              |  | (In thousands of U.S. dollars, except per share information) |        
|Operating Data:                                                                                                               |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Revenues:                                                                                                                     |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Product sales                                                                                                                 |  | $                                                            | 28,710  |   |      | $ | 32,765  |      |  | $ | 97,046 |   |  | $    | 106,662 |   |  | $ | 48,363 |  
|License revenues                                                                                                              |  |                                                              | 108     |   |      |   | 50      |      |  |   |       |   |  |      | 350     |   |  |   | 2,144  |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Total revenues                                                                                                                |  | $                                                            | 28,818  |   |      | $ | 32,815  |      |  |   | 97,046 |   |  |      | 107,012 |   |  |   | 50,507 |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Costs and expenses:                                                                                                           |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Cost of goods sold                                                                                                            |  |                                                              | 21,086  |   |      |   | 24,490  |      |  |   | 51,749 |   |  |      | 55,847  |   |  |   | 27,735 |  
|Research and development                                                                                                      |  |                                                              | 9,629   |   |      |   | 10,700  |      |  |   | 9,650  |   |  |      | 8,395   |   |  |   | 6,545  |  
|Selling, general and administrative                                                                                           |  |                                                              | 20,032  |   |      |   | 18,717  |      |  |   | 22,642 |   |  |      | 23,527  |   |  |   | 15,872 |  
|Settlement of pension liabilities and related costs                                                                           |  |                                                              | 3,542   |   |      |   | 818     |      |  |   |       |   |  |      |        |   |  |   |       |  
|Restructuring costs                                                                                                           |  |                                                              |         |   |      |   |        |      |  |   |       |   |  |      |        |   |  |   | (4,361 | )
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Total costs and expenses                                                                                                      |  |                                                              | 54,289  |   |      |   | 54,725  |      |  |   | 84,041 |   |  |      | 87,769  |   |  |   | 45,791 |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|(Loss) income from operations                                                                                                 |  |                                                              | (25,471 | ) |      |   | (21,910 | )    |  |   | 13,005 |   |  |      | 19,243  |   |  |   | 4,716  |  
|Other income                                                                                                                  |  |                                                              | 474     |   |      |   |        |      |  |   | 681    |   |  |      |        |   |  |   |       |  
|Foreign currency (losses) gains                                                                                               |  |                                                              | 573     |   |      |   | (2      | )    |  |   | 1,150  |   |  |      | 910     |   |  |   | 149    |  
|Interest:                                                                                                                     |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Interest expense                                                                                                              |  |                                                              | (921    | ) |      |   | (1,197  | )    |  |   | (1,504 | ) |  |      | (674    | ) |  |   | (413   | )
|Interest income                                                                                                               |  |                                                              | 948     |   |      |   | 1,309   |      |  |   | 1,350  |   |  |      | 325     |   |  |   | 222    |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|(Loss) income before income tax (benefit) provision                                                                           |  |                                                              | (24,397 | ) |      |   | (21,800 | )    |  |   | 14,682 |   |  |      | 19,804  |   |  |   | 4,674  |  
|Income tax (benefit) provision                                                                                                |  |                                                              | 236     |   |      |   | (2,165  | )    |  |   | 3,432  |   |  |      | 824     |   |  |   | 100    |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Net (loss) income before extraordinary item and cumulative effect of change in accounting principle                           |  |                                                              | (24,633 | ) |      |   | (19,635 | )    |  |   | 11,250 |   |  |      | 18,980  |   |  |   | 4,574  |  
|Cumulative effect of change in accounting principle                                                                           |  |                                                              |        |   |      |   |        |      |  |   |       |   |  |      | (1,833  | ) |  |   |       |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Net (loss) income                                                                                                             |  | $                                                            | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250 |   |  | $    | 17,147  |   |  | $ | 4,574  |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Net (loss) income applicable to common shares                                                                                 |  | $                                                            | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,109 |   |  | $    | 16,121  |   |  | $ | 2,084  |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|(Loss) Income per common share data:                                                                                          |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Basic:                                                                                                                        |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|(Loss) income applicable to common shares before extraordinary item and cumulative effect of change of accounting principle   |  | $                                                            | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.98   |   |  | $    | 1.82    |   |  | $ | 0.25   |  
|Cumulative effect of change in accounting principle                                                                           |  |                                                              |        |   |      |   |        |      |  |   |       |   |  |      | (0.19   | ) |  |   |       |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Net (loss) income                                                                                                             |  | $                                                            | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.98   |   |  | $    | 1.63    |   |  | $ | 0.25   |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Diluted:                                                                                                                      |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|(Loss) income applicable to common shares before extraordinary item and cumulative effect of a change of accounting principle |  | $                                                            | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.88   |   |  | $    | 1.58    |   |  | $ | 0.24   |  
|Cumulative effect of change in accounting principle                                                                           |  |                                                              |        |   |      |   |        |      |  |   |       |   |  |      | (0.16   | ) |  |   |       |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Net (loss) income                                                                                                             |  | $                                                            | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.88   |   |  | $    | 1.42    |   |  | $ | 0.24   |  
|                                                                                                                              |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Average common shares used in the calculation(1)  Basic                                                                      |  |                                                              | 13,928  |   |      |   | 12,533  |      |  |   | 11,281 |   |  |      | 9,868   |   |  |   | 8,254  |  
|                                                                                                                              |  |                                                              |         |   |     
| Diluted                                                                                                                     |  |                                                              | 13,928  |   |      |   | 12,533  |      |  |   | 12,658 |   |  |      | 11,325  |   |  |   | 8,593  |  
|Earnings per common share data(1) (Pro forma):                                                                                |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Pro-forma amounts assuming the accounting change is retrospectively applied                                                   |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  |   |        |  
|Revenue                                                                                                                       |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  | $ | 47,473 |  
|Net income                                                                                                                    |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  | $ | 3,071  |  
|Earnings per share  basic                                                                                                    |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  | $ | 0.07   |  
|Earnings per share  fully diluted                                                                                            |  |                                                              |         |   |      |   |         |      |  |   |        |   |  |      |         |   |  | $ | 0.07   |  



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|                                                                   |  |                                |        |      |   |        |  |      |         |      |   |        |  |   |       
|------------------------------------------------------------------ |  | ------------------------------ | ------ | ---- | - | ------ |  | ---- | ------- | ---- | - | ------ |  | - | ------
|                                                                   |  | December 31,                  
|                                                                   |  | 2003                           |        | 2002 |   | 2001   |  | 2000 |         | 1999
|                                                                   |  | (In thousands of U.S. dollars)
|Balance Sheet Data:                                                |  |                                |        |      |   |        |  |      |         |      |   |        |  |   |       
|Working capital                                                    |  | $                              | 34,402 |      | $ | 55,044 |  | $    | 62,379  |      | $ | 33,346 |  | $ | 23,371
|Total assets                                                       |  | $                              | 83,129 |      |   | 97,188 |  |      | 112,733 |      |   | 95,694 |  |   | 57,278
|Long-term debt and capital lease obligations, less current portion |  |                                | 188    |      |   | 10,717 |  |      | 15,606  |      |   | 2,376  |  |   | 4,151 
|Stockholders equity(2)                                            |  |                                | 53,370 |      |   | 60,520 |  |      | 65,453  |      |   | 49,920 |  |   | 31,604

---

|(1) | We changed our accounting policy with respect to revenue recognition in the year ended December 31, 2001. In accordance with Accounting Principles Board Opinion 20, we accounted for
the change as a cumulative effect on the prior years resulting from the change to a different revenue recognition policy. As a result, the selected consolidated financial data for the period ending on December 31, 1999 has not been restated, but pro
forma revenue, net income and earnings per share are included as a footnote to the selected consolidated data.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Stockholders equity for December 31, 2000 and earlier includes convertible preferred stock.
|--- | --------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



Overview



Our business is to design, manufacture market and sell advanced production equipment and related support services that are used in the production of
semiconductors. We face a variety of challenges in responding to the dynamics of this industry, which is characterized by a high level of volatility caused by sudden changes in demand for semiconductors and manufacturing capacity. In addition
because of the large unit price associated with our systems, which typically vary between $0.9 million and $3.5 million, our backlog, shipments and revenues can be affected positively, or negatively, by a relatively small swing in orders. Our
revenues during the three fiscal years ending December 31, 2003 were substantially affected by the rapid reduction in demand for semiconductor equipment that began towards the end of fiscal 2000. As fiscal 2001 progressed, the decline in demand
deepened and the industry entered a severe downturn. This downturn continued into fiscal 2003 and while there have been indications that an industry recovery started in the second half of 2003, we did not benefit from this recovery in fiscal 2003.



In addition to the initial sale of equipment, we also provide
on site support and spares parts. Sales of on site support and spare parts were $10.7 million and $9.0 million (including sales of our CNC subsidiary of $0.9 million and $1.1 million) for the years ended December 31, 2003 and 2002 respectively. The
sales of support and spares is less volatile than the sale of the equipment.



Critical Accounting Policies



General



Our discussion and analysis of the financial condition
and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Note 1 to notes to consolidated financial statements describes the
significant accounting policies used in the preparation of the consolidated financial statements. Certain of these accounting policies are considered to be critical accounting policies as defined below.



A critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates
generally require us to make assumptions about matters that are highly uncertain at the time of the estimate; and



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if different estimates or judgments were used would have a material effect on our financial condition or results of operations.



The estimates and judgments we make that affect the reported amount of
assets, liabilities, revenues and expenses are based on our historical experience and on various other factors which we believe to be reasonable in the circumstances. Actual results may differ from these estimates under different assumptions or
conditions. We consider our accounting policies related to revenue recognition, foreign currency translation, the valuation of inventories including demonstration inventory and accounting for the costs of installation and warranty obligations to be
critical accounting policies.



Revenue Recognition



We derive our revenues from three sources 
equipment sales, spare parts sales and the provision of services. We changed our revenue recognition policy in fiscal 2000 to adopt Staff Accounting Bulletin 101 issued by the staff of the Securities and Exchange Commission. We recognize revenue
when all the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services rendered, the sales price is fixed or determinable and collectivity is reasonably assured. For transactions that consist of
multiple deliverables we allocate revenue to each of the deliverables based upon relative fair values and apply the revenue recognition criteria above to each element.



Generally, we recognize revenue on shipment, as the equipment is pre-tested in the factory prior to shipment and our terms
of business are FOB factory. For new customers, or new products, revenue is recognized on shipment only if the customer attends and approves the pre-shipment testing procedures and we, and the customer, are satisfied that the performance of the
equipment, once installed and operated, will meet the customer-defined specifications. Generally even with new customers we recognize the revenue on shipment because the customer attends and approves the pre-shipment testing. The amount of revenue
recorded is reduced by the amount of any customer retention (typically between 10% and 20%), which is not payable by the customer until installation is completed and final customer acceptance is achieved. The amount of revenue related to system
shipments and customer retentions deferred at December 31, 2003 was $5.1 million compared to $1.2 million at December 31, 2002. Generally the provision of installation and commissioning services are not considered essential to the functionality of
the equipment.



Equipment sold as demonstration or evaluation
units are recognized as revenue on transfer of title and, either final acceptance, or satisfactory completion of testing to demonstrate that the equipment meets all the customer defined specifications.



Revenue related to spare parts is recognized on shipment. Revenue related to
service contracts is recognized ratably over the duration of the contracts.



During fiscal 2003 we entered into a contract to develop new equipment for a customer and we determined that the revenue associated with this transaction should be accounted for in accordance with SOP 81-1 
Accounting for the Performance of Construction-Type and Certain Production-type Contracts. The developed equipment was shipped to the customer in fiscal 2003, however significant development work will be required during fiscal 2004 and
no revenue was recognized with respect to this project in fiscal 2003. The full value of the contract has been deferred until such time as we can establish criteria to recognize the revenue under the percentage of completion method or alternatively
on completion of the contract. Deferred revenue at December 31, 2003 includes $1.8 million in respect of this contract.



Foreign Currency Translation



Most of our operations are located within the United Kingdom and most of our costs are incurred in British pounds. However our system sales are generally
in US dollars and, to a lesser extent, in euro and we report in US



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dollars. As a result, fluctuations in the exchange rate between the US dollar and the British pound have a significant effect on our reported earnings and
net asset position. We have determined that the functional currency for all UK operations is the British pound and as a result our actual expenses expressed in US dollars will fluctuate with changes in foreign currency exchange rates and result in
currency gains and losses, which are charged to net income. Changes in the value of non-US net assets as a result of these movements of foreign currency exchange rates are treated as changes to the cumulative translation adjustment on the balance
sheet. We also have significant intercompany loans between the United Kingdom operating subsidiary and the parent, which are short-term in nature. This determination results in exchange gains and losses associated with these loans being accounted
for in the profit and loss account.



Inventory Valuation



Inventories are stated at the lower of cost or net
realizable value, using standard costs which approximate to actual cost. We maintain a perpetual inventory system and continuously record the quantity on hand and standard cost of each product including purchased components, sub assemblies and
finished goods. We maintain the integrity of the perpetual inventory through a cycle stock count program. Our standard costs are re-assessed at least annually and generally reflect the most recent purchase cost and currently achievable assembly and
test labor and overhead rates. We estimate our labor and overhead rates based upon average utilization rates and treat as a period cost abnormal absorption variances, which arise due to low or high production volumes. As a result of the low levels
of production, significant negative volume variances are being experienced, which has resulted in a gross margin that is below levels that could be achieved at higher revenue levels.



We also make provision for slow moving and obsolete inventory and evaluate their adequacy on a quarterly basis. For our work
in process and finished goods inventory, which generally consist of specific systems or modules, we compare the inventory on hand to current sales and market forecasts and other information that indicates the ability to identify a purchaser for such
equipment. We apply a formula approach to reserves against raw materials and spares inventory based upon 12 months historic usage, applying different criteria to components that are required for current products, non current products and spares.



A major component of the estimate of inventory reserves is our
forecast of future customer demand, technological and/or market obsolescence, and general semiconductor market conditions. If future customer demand or market conditions are less favorable than our projections then additional inventory write-downs
may be required, and these would be reflected in cost of sales in the period the reserves were adjusted.



Installation and Warranty



Our contracts cover on-site installation services and provide for a warranty of the equipment. Generally we accrue for the costs of installation and
commissioning services at the time of revenue recognition. Our standard warranty period varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased. We account for the estimated warranty cost as a charge
to cost of sales at the time we recognize revenue. The warranty reserve is based upon historic product performance and is based on a rolling 12-month average historic cost per machine per warranty month outstanding. We also recalculate the estimated
warranty cost for all remaining systems still under warranty using the most recent historic average and the difference is included as a component of cost of sales. We do not maintain any general reserves for warranty obligations. Actual warranty
costs in the future may vary from historic costs, which could result in adjustments to our warranty reserves in future periods that are more volatile than in recent years.



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Results of Operations



The following table sets forth certain operating data as a percentage of total revenue for the periods indicated:



|                                                       |  |                          |    |  |       |    |  |       |  
|------------------------------------------------------ |  | ------------------------ | -- |  | ----- | -- |  | ----- | -
|                                                       |  | Years Ended December 31, |   
|                                                       |  | 2003                     |    |  | 2002  |    |  | 2001  |  
|Consolidated Statements of Operations Data:            |  |                          |    |  |       |    |  |       |  
|Revenues:                                              |  |                          |    |  |       |    |  |       |  
|Product sales                                          |  | 99.6                     | %  |  | 99.8  | %  |  | 100.0 | %
|Licence revenues                                       |  | 0.4                      |    |  | 0.2   |    |  | 0.0   |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Total revenues                                         |  | 100.0                    |    |  | 100.0 |    |  | 100.0 |  
|Costs of goods sold                                    |  | 73.2                     |    |  | 74.6  |    |  | 53.3  |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Gross profit                                           |  | 26.8                     |    |  | 25.4  |    |  | 46.7  |  
|Operating expenses:                                    |  |                          |    |  |       |    |  |       |  
|Research and development                               |  | 33.4                     |    |  | 32.6  |    |  | 9.9   |  
|Selling, general and administrative                    |  | 69.5                     |    |  | 57.1  |    |  | 23.4  |  
|Settlement of pension liabilities and related expenses |  | 12.3                     |    |  | 2.5   |    |  |      |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Total operating expenses                               |  | 115.2                    |    |  | 92.2  |    |  | 33.3  |  
|                                                       |  |                          |    |  |       |    |  |       |  
|(Loss) income from operations                          |  | (88.4                    | )  |  | (66.8 | )  |  | 13.4  |  
|Foreign currency gains (losses)                        |  | 2.0                      |    |  |      |    |  | 1.2   |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Other income                                           |  | 1.6                      |    |  |      |    |  | 0.7   |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Interest income (expense), net                         |  | 0.1                      |    |  | 0.4   |    |  | (0.2  | )
|                                                       |  |                          |    |  |       |    |  |       |  
|(Loss) income before income tax charge                 |  | (84.7                    | )  |  | (66.4 | )  |  | 15.1  |  
|Income tax charge (credit)                             |  | 0.8                      |    |  | (6.6  | )  |  | 3.5   |  
|                                                       |  |                          |    |  |       |    |  |       |  
|Net (loss) income                                      |  | (85.5                    | )% |  | (59.8 | )% |  | 11.6  | %
|                                                       |  |                          |    |  |       |    |  |       |  



Comparison of the Years Ended
December 31, 2003 and 2002



Product Sales.



Product sales for the year ended December 31, 2003
decreased 12% to $28.7 million compared to $32.8 million for the year ended December 31, 2002. Shipments for the year ended December 31, 2003 were $32.7 million compared to $28.9 million shipped in the prior year. The level of sales and shipments in
the year reflects the effects of the global slowdown in the semiconductor industry.



Our sales by product are as follows:



|                   |  |                        |   |  |      |  
|------------------ |  | ---------------------- | - |  | ---- | -
|                   |  | Year EndedDecember 31, |  
|                   |  | 2003                   |   |  | 2002 |  
|PVD                |  | 22                     | % |  | 34   | %
|CVD                |  | 21                     | % |  | 17   | %
|Etch               |  | 20                     | % |  | 22   | %
|Spares and support |  | 37                     | % |  | 27   | %
|                   |  |                        |   |  |      |  
|Total              |  | 100                    | % |  | 100  | %
|                   |  |                        |   |  |      |  



Sales outside of the
United States accounted for approximately 61% and 67% of total revenues for the years ended December 31, 2003 and 2002, respectively. We expect that sales outside of the United States will continue to represent a significant percentage of our
product sales through 2004.



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Because of the large unit price associated with our systems, our product sales are represented by a small
number of unit sales in each year and therefore the quantity, product mix and geographical mix of product shipped in any particular year can fluctuate significantly as can the individual customers to whom these products are sold.



License Revenues.



License revenues are in respect of an exclusive license of power supply
technology and a non-exclusive license of our MORI technology to a systems integrator in Japan for a non-competing application. License revenues increased 116% to $108,000 for the year ended December 31, 2003 compared to $50,000 received during the
year ended December 31 2002. License revenues are expected to continue to represent a small part of our revenue.



Gross Margin on Product Sales.



The gross margin on product revenues for the year ended December 31, 2003 was 26.8% as compared to 25.4% for the year ended December 31, 2002. Cost of
goods sold for the year ended December 31, 2003 included $290,000 relating to the costs of a reduction in workforce compared to $345,000 in the year ended December 31, 2002. Cost of goods sold for the year ended December 31, 2003 also included a
non-cash charge of $2.1 million with respect to the write-down of inventory associated with the current downturn in the semiconductor business compared to $2.3 million in the prior year. Better utilization of manufacturing costs positively impacted
the gross margin in fiscal 2003 but this was offset in part by an unfavorable product mix compared to 2002.



Research and Development Expenses.



Research and development expenses for the year ended December 31, 2003 were $9.6 million or 33.4% of total revenues compared with $10.7 million or 32.6%
of total revenues for the prior year. The major focus of our research and development efforts continues to be the development of new processes in further advancing our proprietary PVD, CVD and etch technologies as well as adding enhancements to our
existing products. We are committed to continued investment in our research and development and expect that our research and development expenses for 2004 will continue to be incurred at similar or greater levels to fiscal 2003.



Selling, General and Administrative Expenses.



Selling, general and administrative expenses for the year ended December 31,
2003 were $20.0 million, or 69.5% of total revenues, compared to $18.7 million, or 57.1% of total revenues, in the year ended December 31, 2002. As the majority of our costs are incurred in British Pounds, in local currency terms our expenses
declined in fiscal 2003 compared to fiscal 2002. While selling general and administrative expenses when reported in US dollars for the year ended December 31, 2003 compared to the prior year increased 7%, the movement in the US dollar exchange rate
to the British Pound increased reported expenses by 9%. In addition, in fiscal 2003 we incurred non-recurring costs associated with employer social security taxes relating to the vesting of 1,149,281 shares, a contested 2003 annual shareholder
meeting, accruals with respect to leasehold buildings no longer used by the Company and the changeover of the Chief Executive Officer, which totaled $941,000.



Result from Operations.



We incurred a loss from operations of $25.5 million in the year ended December 31, 2003 compared to a loss of $21.9 million in the prior year. Lower
revenue was the major component of the increase in the loss from operations. The pension settlement charge of $3.5 million in the year ended December 31, 2003 compared to $818,000 in the year ended December 31, 2002 had a significant effect upon the
result of operations for fiscal 2003. See note 11, Pensions and other Post Retirement Benefits to the notes to the consolidated financial statements.



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Other Income.



We earned $474,000 during the year ended December 31, 2003 in connection with the sale of property we no longer required for
our operations.



Interest Income and Expense, Net.



Net interest income was $27,000 for the year ended
December 31, 2003 compared with $112,000 for the year ended December 31, 2002. Net interest income was reduced in the year ended December 31, 2003 compared to the prior year, in part due to lower cash balances, but also due to interest payable on
taxes outstanding from the prior year, which were settled during the year.



Income Taxes.



For the
year ended December 31, 2003 we recorded a tax charge of $0.2 million compared to a tax credit of $2.2 million for year ended December 31, 2002 resulting in an effective income tax rate of 0.9% and (9.9)%, respectively. The current year tax charge
primarily relates to US state franchise taxes and to income taxes in our German subsidiary.



We generated a significant portion of our consolidated pre-tax losses for the year ended December 31, 2003 and December 31, 2002 within the United Kingdom, which has a lower statutory rate of 30% compared to the US
federal rate of 35%. In addition to the lower statutory rate, the generation of net operating losses results in fluctuations in the effective tax rate, as we have not recognized any deferred tax assets with respect to net operating losses, which can
only be utilized against future profits. We incurred United Kingdom income taxes in fiscal 2001 and we were able to carry back some of the tax losses incurred in the United Kingdom during fiscal 2002 against these taxes. See note 6 to the notes to
the consolidated financial statements for a detailed reconciliation of the tax rate for 2003 and 2002.



As of December 31, 2003, we had US federal losses of $26.1 million, various state operating losses and United Kingdom net operating losses of
approximately $46.6 million, which can be offset against future income. Our ability to use our US and United Kingdom net operating losses and credit carry forwards will depend upon the ability to generate future income within the US and United
Kingdom to utilize these losses and a portion of our US net operating losses are subject to annual limitations arising from a change of control as defined by Section 382 of the internal revenue code, as revised.



In addition to the United States and the United Kingdom, we have operating
subsidiaries in several other countries, and each of these subsidiaries are taxed based on the laws of the jurisdiction in which they operate. Because taxes are incurred at the subsidiary level, and one subsidiarys tax losses cannot be used to
offset the taxable income of subsidiaries in other jurisdictions, our consolidated effective tax rate can vary significantly to the extent we report tax losses in some subsidiaries and taxable income in others. We also assume that our profits
generated in overseas jurisdictions are reinvested overseas. The payment of dividends or distributions by the subsidiaries to the United States may be subject to withholding taxes in the country of domicile and further taxation by federal or state
authorities subject to the terms or relevant double tax treaties.



Comparison of the Years Ended December 31, 2002 and 2001



Product Sales.



Product
sales for the year ended December 31, 2002 decreased 66% to $32.8 million compared to $97.0 million for the year ended December 31, 2001. Shipments for the year ended December 31, 2002 were $28.9 million compared to $92.8 million shipped in the
prior year. The decline in sales and shipments in the year reflects the effects of the protracted global slowdown in the semiconductor industry. Our revenues in fiscal 2001 reflected our significant backlog from fiscal 2000, prior to the onset of a
global slowdown.



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Our sales by product are as follows:



|       |  |                        |   |  |      |  
|------ |  | ---------------------- | - |  | ---- | -
|       |  | Year EndedDecember 31, |  
|       |  | 2002                   |   |  | 2001 |  
|PVD    |  | 34                     | % |  | 48   | %
|CVD    |  | 17                     | % |  | 8    | %
|Etch   |  | 22                     | % |  | 34   | %
|Spares |  | 27                     | % |  | 10   | %
|       |  |                        |   |  |      |  
|Total  |  | 100                    | % |  | 100  | %
|       |  |                        |   |  |      |  



Sales outside of the
United States accounted for approximately 67% and 68% of total revenues for the years ended December 31, 2002 and 2001, respectively. Revenues for the year ended December 31, 2001 included cancellation fees of $1.4 million.



License Revenues.



License revenues of $50,000 in the year ended December 31, 2002 related to
power supply technology. No license revenues were earned during the year ended December 31, 2001.



Gross Margin on Product Sales.



The gross margin on product revenues for the year ended December 31, 2002 was 25.4% as compared to 46.7% for the year ended December 31, 2001. Cost of
goods sold for the year ended December 31, 2002 included $345,000 relating to the costs of a reduction in workforce compared to $302,000 in the year ended December 31, 2001. Cost of goods sold for the year ended December 31, 2002 also included a non
cash charge of $2.3 million with respect to the write down of inventory compared to $1.0 million in the prior year. In addition, under utilization of manufacturing and customer support costs negatively affected the gross margin in the year ended
December 31, 2002. Sales of higher margin products and a receipt of fees for order cancellations offset, somewhat, the factors contributing to the reduced gross margin in the year ended December 31, 2002.



Research and Development Expenses.



Research and development expenses for the year ended December 31, 2002 were
$10.7 million or 32.6% of total revenues compared with $9.7 million or 9.9% of total revenues for the prior year. The major focus of our research and development efforts continued to be the development of new processes in further advancing our
proprietary PVD, CVD and etch technologies as well as adding enhancements to our existing products.



Selling, General and Administrative Expenses.



Selling, general and administrative expenses for the year ended December 31, 2002 were $19.5 million, or 59.5% of total revenues, compared to $21.5
million, or 22.2% of total revenues, in the year ended December 31, 2001. While the reduction in selling, general and administrative expenses when reported in US dollars for the year ended December 31, 2002 compared to the prior year was only 17%,
the movement in the US dollar exchange rate to the British pound had an adverse effect on selling, general and administration by 5% such that the saving in real terms was 22%.



Results from Operations.



As a result of the decrease in revenue for the year ended December 31, 2002 and our strategy to keep our key infrastructure in place during the cyclical
industry downturn, we incurred a loss from operations of $21.9 million or 66.8% of revenue compared with income from operations of $14.2 million or 14.6%of revenue in the prior year.



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Other Income.



We earned $681,000 during the year ended December 31, 2001 in connection with the sale of property we no longer required for
our operations.



Interest Income and Expense, Net.



Net interest income was $112,000 for the year ended
December 31, 2002 compared with net interest expense of $154,000 for the year ended December 31, 2001. The achievement of interest income is due primarily to interest income received on increased cash balances during fiscal 2002 offsetting interest
expense on the bank term loan. In addition, interest cost on our 71/8% subordinated convertible notes ceased in
2001 following their payment in full in October 2001.



Income Taxes.



For the year ended December 31,
2002, we recorded a tax credit of $2.2 million compared to a charge of $3.4 million for year ended December 31, 2001 resulting in an effective income tax rate of 9.9% and 23.4%, respectively.



We generated a significant portion of our consolidated pre-tax losses for the
year ended December 31, 2002, and pre-tax income for the year ended December 31, 2001, within the United Kingdom, which has a lower statutory rate of 30% compared to the US federal rate of 35%. In addition to the lower statutory rate, the generation
and use of net operating losses results in fluctuations in the effective tax rate, as we have not recognized any deferred tax assets with respect to net operating losses, which can only be utilized against future profits. We incurred United Kingdom
income taxes in fiscal 2001 and we were able to carry back some of the tax losses incurred in the United Kingdom during fiscal 2002 against these taxes. The remaining operating losses in the year ended December 31, 2002, are carried forward to
future periods and we did not recognize a deferred tax asset with respect to these losses. See Note 6 to the notes to the consolidated financial statements for a detailed reconciliation of the tax rate for 2002 and 2001.



Liquidity and Capital Resources



At December 31, 2003, we had $31.6 million in cash and cash equivalents,
compared to $42.6 million at December 31, 2002. The primary uses of cash in the year ended December 31, 2003 were operations, which used $10.8 million. In addition we invested $1.5 million in property, plant and equipment, net of retirements and
repaid $8.4 million of our term loan facility with a British bank and $700,000 with respect to our leasing facilities. In October 2003, our cash and cash equivalents were increased as a result of the sale of 1,400,000 shares of our common stock, in
a private transaction with an institutional shareholder. The net proceeds that we received amounted to approximately $6.5 million. We also disposed of our prior United Kingdom head office building, which had been unused since 1997. This sale
generated approximately $1.7 million net of costs of disposal. In addition, the effect of exchange rate changes was an increase of $2.3 million on our cash and cash equivalents at December 31, 2003.



At December 31, 2003, we had a term loan from a British bank with a balance
outstanding of 6.2 million British pounds compared to 11.2 million British pounds at December 31, 2002 (approximately $11.2 million and $18.2 million, respectively, at the respective year end exchange rates). The term loan at December 31, 2003 bore
interest at the three month London Interbank Borrowing Rate (LIBOR) plus 1.25% per annum (payable at an annual rate of 5.26% as at December 31, 2003) and also carried no prepayment penalties. This term loan was repaid in January 2004.



In July 2003 we entered into a two-year revolving credit facility for 5
million British pounds (approximately $9.0 million at the December 31, 2003 exchange rate) or its equivalent in any other allowed currency (2003



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facility). Interest on the 2003 facility, will be incurred at LIBOR plus 1.75% for borrowings in British pounds and at the Banks short-term offered
rate plus 1% for loans in any other currency. No amounts are outstanding under this facility at December 31, 2003.



The 2003 facility included financial covenants that required we maintain a consolidated net worth of not less than $45 million, and that our interest
expense on the loan does not exceed 70,000 British pounds in any one fiscal quarter. In March 2004 by way of an amendment letter, the covenant to maintain a consolidated net worth of not less than $45 million was changed to the reduced amount of not
less than $40 million. At December 31, 2003 our consolidated net worth was $53.4 million. The primary factors that affect our consolidated net worth are foreign currency translation and net losses. To the extent the US dollar strengthens against the
British pound or we incur net losses, our consolidated net worth will continue to decline. If our consolidated net worth falls below $40 million then we would be in breach of this covenant and would need to negotiate a further amendment or waiver to
use this line of credit. There can be no assurance that our Bank would agree to such an amendment or waiver. The March 2004 amendment letter did not alter the interest covenant. Based upon the interest rate as at December 31, 2003 the covenant that
our interest expense on the loan does not exceed 70,000 British pounds in any one fiscal quarter does not restrict our ability to use this facility.



At December 31, 2003, our cash obligations and commitments relating to our debt obligations and lease payments were as follows ($000):



|                            |  |       |        |                  |   |             |  |             |       |                     |   |       |  |   |      
|--------------------------- |  | ----- | ------ | ---------------- | - | ----------- |  | ----------- | ----- | ------------------- | - | ----- |  | - | -----
|                            |  | Total |        | Less than 1 year |   | 1 to 3years |  | 3 to 5years |       | Greater than5 years
|Bank Loan                   |  | $     | 11,188 |                  | $ | 11,188      |  | $           |      |                     | $ |      |  | $ |     
|Capital lease obligations   |  | $     | 736    |                  | $ | 548         |  | $           | 188   |                     | $ |      |  | $ |     
|Operating lease obligations |  | $     | 7,759  |                  | $ | 1,770       |  | $           | 2,426 |                     | $ | 2,181 |  | $ | 1,382



With the exception of
the above operating leases we have no off balance sheet financing activities.



Our cash balance of $31.6 million combined with cash generated by operations will be our primary source of liquidity. We repaid our outstanding term loan in January 2004, which used $11.2 million of this cash balance.
During the next 12 months, we may use all, or a substantial part of our cash balance to fund our current obligations and our operations. The amount of cash reserves that we will use to fund our operations will depend on our ability to grow our
revenue or reduce our operating expenses. We also have available the 2003 facility through June 2005 subject to remaining compliant with the financial covenants as discussed above.



We will continue to rely on our cash resources to fund operations, but
management believes that the current cash balances, the availability of loans under the 2003 facility, our forecasts for revenue in fiscal 2004 and potential cost reduction efforts, will be sufficient to fund our operations for at least the next 12
months. In the event that loans under our credit facility are not available, or increases in revenues do not materialize, we would need to rely more heavily on cost reduction efforts to maintain sufficient cash to operate the business. In order to
further strengthen our cash position, we may seek to raise additional debt or equity financing.



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RISK FACTORS



The semiconductor industry is highly cyclical and unpredictable, which affect our revenue, gross margin and results of operations.



We are subject to the global semiconductor
industrys business cycles, the timing, length and volatility of which are difficult to predict. The semiconductor industry has historically been cyclical because of sudden changes in demand for semiconductors and manufacturing capacity,
including capacity utilizing the latest technology. These fluctuations in demand have affected the timing and amounts of customers capital equipment purchases and investments in new technology, and continue to affect our revenue, gross margin
and results of operations. In addition to affecting our customers and suppliers, these business cycles also challenge our key management, engineering and other employees.



During periods of increasing demand for semiconductor manufacturing equipment, we must have sufficient manufacturing
capacity and inventory to meet customer demand, and must be able to attract, hire, assimilate and retain a sufficient number of qualified individuals. The semiconductor industry appears to be in the early stages of an upturn. However, we cannot
predict the sustainability of a recovery, if any, and/or the industrys rate of growth in such a recovery, and our ability to take advantage of the upturn if it continues. As at December 31, 2003 we have not significantly benefited from the
early stage of the upturn. If we are unable to effectively manage our resources and production capacity during an industry upturn, there could be a material adverse effect on our business, financial condition and results of operations. Conversely,
in downturns, we must be able to appropriately align our cost structure with prevailing market conditions and effectively motivate and retain key employees. In response to the downturn that began in fiscal 2001, we reduced our cost structure as
appropriate, however we continued our research and development, customer support and sales and marketing at levels that resulted in operating losses for fiscal 2002 and 2003. We believe these levels of expenditure are necessary to compete in this
market. If we are unable to take advantage of a cyclical upturn, or the upturn does not materialize we would continue to incur losses and may be required to reduce our cost structure significantly, such that it would harm our ability to continue to
operate in the global semiconductor market place.



We are exposed to risks
associated with a highly concentrated customer base.



Our
customer base is, and has been, highly concentrated and our orders are from a relatively limited number of manufacturers of integrated circuits. This may lead to customers to demand from us less favorable pricing and other terms. In addition, sales
to any single customer may vary significantly from quarter to quarter. If current customers delay, cancel or do not place orders we may not be able to replace these orders with new orders. As our products are configured to customer specifications,
changing, rescheduling or canceling orders may result in significant and often non-recoverable costs. The resulting fluctuations in the amount of and terms of orders could have a material adverse effect on our business, financial condition and
results of operations.



We will not be able to compete effectively if we
fail to address the rapid technological change in the semiconductor industry.



The semiconductor industry and the semiconductor equipment industry are subject to rapid technological change and frequent introductions of enhancements to existing products, and if we are unable to develop and
incorporate new technologies in our products, we will be unable to compete effectively and our business will be materially and adversely affected. Technological trends have had and will continue to have a significant impact on our business. Our
results of operations and ability to remain competitive are largely based upon our ability to accurately anticipate customer and market requirements. Accordingly, we may be required to maintain a relatively high level of research and development
spending, even at time of declining sales and profitability, in order to maintain our competitive position.



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Our success in developing, introducing and selling new and enhanced products depends upon a variety of
factors, including:



| |  | timely and efficient completion of product design and development;
| | - | ------------------------------------------------------------------



| |  | timely and efficient implementation of manufacturing and assembly processes;
| | - | ----------------------------------------------------------------------------



| |  | effective sales and marketing;
| | - | ------------------------------



| |  | product performance in the field; and
| | - | -------------------------------------



| |  | product support and service.
| | - | ----------------------------



We may not be able to accurately forecast or respond to commercial and technical trends in the semiconductor industry or respond to specific product
announcements by our competitors. Our competitors may be developing technologies and products that are more effective or that achieve more widespread acceptance. In addition, we may incur substantial costs to ensure the functionality and reliability
of our current and future products. If our products are unreliable or do not meet our customers expectations, then reduced orders, higher manufacturing costs, delays in collecting accounts receivable or additional service and warranty expense
could result. Our customers may purchase equipment for their new products but experience delays and technical and manufacturing difficulties in their introductions or transition to volume production using our systems causing significant delays
between the sale of an initial tool into our customers development facility and potential follow on sales for manufacturing. Any of these events could negatively affect our ability to generate the return we expect to achieve on our investments in
these new products.



We expect the semiconductor industry to
further migrate to the use of copper and will need to continue to adapt our products for use with copper and copper processes. If we fail to make our products compatible with copper and copper processes at the time our competitors offer copper
compatible products, our revenues and market share will be negatively affected.



The semiconductor industry also has historically moved to larger diameter wafers requiring new equipment as a strategy to reduce manufacturing costs. The maximum diameter of silicon wafers used in production is
increasing from 200mm to 300mm. While we have already shipped 300mm systems for our CVD products, we continue to develop the technology and solutions for our PVD and etch systems. There can be no assurance, however, that we will be able to complete
the development of 300mm systems for our PVD and etch systems in time to meet market demand. If our current products and our 300mm systems for our PVD and etch systems are not competitive or available at the correct time, we may lose customers or
fail to gain new business from potential customers, which would have a material adverse effect on our revenues and net earnings.



We believe that our technology for the deposition of low k dielectrics is advanced compared to our competitors and we are dedicating significant resources
to continue to lead in this field and to achieve the commercial sales of our low k systems. However, the physical characteristics of low k films make the manufacturing process significantly more difficult than with existing insulating materials and,
as a result, device manufacturers have been slow to adopt the use of low k materials and this adoption has been delayed during the current downturn. Device manufacturers continue to find alternative methods to manufacture devices at smaller feature
sizes, and forgo the development and use of low k materials. Also, there can be no assurance that the industry will adopt a CVD method for the deposition of low k films. Other technologies for which we do not manufacture equipment could also be used
for the deposition of low k films. If we fail to continue to develop our low k CVD solution to achieve all the specifications required by device manufacturers, or our competitors develop competing low k solutions, then our ability to grow our
revenues and market share from these products would be negatively affected.



Our operational results could be negatively affected by currency fluctuations.



We are based in the United Kingdom, and most of our operating expenses are incurred in British pounds. Our revenues, however, are generally denominated in
US dollars, and to a lesser extent in euros, and we report



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our financial results in US dollars. Accordingly, if the British pound increases in value against the US dollar, our expenses as a percentage of revenues
will increase and gross margins and net income will be negatively affected.



The semiconductor industry is global and is expanding within the Asian region. If we are unable to penetrate this market our ability to grow our revenues will be restricted.



The percentage of worldwide semiconductor production that is based in the
Asian region is growing, particularly within China. Our business has traditionally been strongest with the European semiconductor manufacturers and we have only a small installed base and limited brand recognition in Asia. It will be necessary for
us to penetrate new customers in this region to grow our business and while we have appointed a new sales representative in this region and hired a small number of employees there is no assurance that we will be able to penetrate these geographic
markets which are subject to growth rates that are higher than worldwide growth rates.



Our competitors have greater financial resources and greater name recognition than we do and therefore may compete more successfully.



We face competition or potential competition from many companies with greater resources than ours. If we are unable to compete effectively with these
companies, our market share may decline and our business could be harmed.



Virtually all of our primary competitors are substantially larger companies and some of them have broader product lines than ours. They have well established reputations in the markets in which we compete, greater
experience with high volume manufacturing, broader name recognition, substantially larger customer bases, and substantially greater financial, technical, manufacturing and marketing resources than we do. We also face potential competition from new
entrants, including established manufacturers in other segments of the semiconductor capital equipment market who may decide to diversify into our market segments of CVD, PVD and plasma etch.



Semiconductor manufacturers are loyal to their current semiconductor equipment supplier,
which may make it difficult for us to obtain new customers.



We believe that once a semiconductor manufacturer has selected a suppliers equipment for a particular fabrication line, the manufacturer often will continue to rely on that suppliers equipment for future requirements, including
new generations of similar products. If we are unable to sell our products to potential customers who currently are using other suppliers equipment, it could be difficult for us to increase our revenues or market share. Changing from one
equipment supplier to another may be expensive and may require a substantial investment of resources by the customer. Accordingly, we may experience difficulty in achieving significant sales to a customer using another suppliers equipment. At
the same time, however, we cannot make assurances that our existing customers will continue to use our equipment in the future.



Our products generally have long sales cycles and implementation periods, which increase our costs of obtaining orders and reduce the predictability of our earnings.



Our products are technologically complex. Prospective
customers generally must commit significant resources to test and evaluate our products and to install and integrate them into larger systems. In addition, customers often require a significant number of product presentations and demonstrations, in
some instances evaluating equipment on site, before reaching a sufficient level of confidence in the products performance and compatibility with their requirements to place an order. As a result, our sales process is often subject to delays
associated with lengthy approval processes that typically accompany the design and testing of new products. The sales cycles of our products often last for many months or even years. Longer sales cycles require us to invest significant resources in
attempting to make sales and delay the generation of revenue. In addition, we may incur significant costs in supporting evaluation equipment at our customers facilities.



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Long sales cycles also subject us to other risks, including customers budgetary constraints,
internal acceptance reviews and cancellations. In addition, orders expected in one quarter could shift to another because of the timing of customers purchase decisions. The time required for our customers to incorporate our products into their
manufacturing processes can vary significantly with the needs of our customers and generally exceeds several months, which further complicates our planning processes and reduces the predictability of our operating results.



We depend upon sole suppliers for certain key components.



We depend on a number of sole suppliers for key components used in the
manufacture of our products. If we are unable to obtain timely delivery of sufficient quantities of these components, we would be unable to manufacture our products to meet customer demand, unless we are able to locate replacement components. Most
significantly, our cluster tools are designed around an automation module supplied by Brooks Automation. Due to the high cost of these modules we keep very few in inventory. If Brooks Automation fails to deliver the component on a timely basis,
delivery of our cluster tools will be delayed and sales may be lost. If Brooks Automation is unable to deliver any such modules for a prolonged period of time, we will have to redesign our cluster tools so that we may utilize other wafer transport
systems. There can be no assurance that we will be able to do so, or that customers will adopt the redesigned systems.



Our final assembly and testing is concentrated in one facility.



Our final assembly and testing activity is concentrated in our facility in Newport, United Kingdom. We have no alternative facilities to allow for
continued production if we are required to cease production in our facility, as a result of a fire, natural disaster or otherwise. In such event, we will be unable to produce any products until the facility is replaced. Any such interruption in our
manufacturing schedule could cause us to lose sales and customers.



If we
are unable to hire and retain a sufficient number of qualified personnel, our ability to manage growth will be negatively affected.



Our business and future operating results depend in part upon our ability to attract and retain qualified management, technical, sales and support
personnel for our operations on a worldwide basis. Competition for qualified personnel is intense, and we cannot guarantee that we will be able to continue to attract and retain qualified personnel. Our operations could be negatively affected if we
lose key executives or employees or are unable to attract and retain skilled executives and employees as needed.



Our ability to compete could be jeopardized if we are unable to protect our intellectual property rights from challenges by third parties.



Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trade secret, copyright and trademark laws, non-disclosure and other contractual agreements and technical measures to protect our proprietary rights.



There can be no assurance that patents will be issued on our pending patent
applications or that competitors will not be able to ascertain legitimately proprietary information embedded in our products that is not covered by patent or copyright. In such case, we may be precluded from preventing the competitor from making use
of such information. In addition, should we wish to assert our patent rights against a particular competitors product, there can be no assurance that any claim in any of our patents will be sufficiently broad nor, if sufficiently broad, any
assurance that our patent will not be challenged, invalidated or circumvented, or that we will have sufficient resources to prosecute our rights.



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##### Table of Contents

Claims or litigation regarding intellectual property rights could seriously harm our business or require us to incur
significant costs.



In recent years, there has been
significant litigation in the United States in the semiconductor equipment industry involving patents and other intellectual property rights. Infringement claims may be asserted against us in the future and, if such claims are made, we may not be
able to defend against such claims successfully or, if necessary, obtain licenses on reasonable terms. Any claim that our products infringe proprietary rights of others would force us to defend ourselves and possibly our customers against the
alleged infringement. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their outcome, would likely be
time-consuming and expensive to resolve and would divert management time and attention. Any potential intellectual property litigation could force us to do one or more of the following:



| |  | lose or forfeit our proprietary rights;
| | - | ---------------------------------------



| |  | stop manufacturing or selling our products that incorporate the challenged intellectual property;
| | - | -------------------------------------------------------------------------------------------------



| |  | obtain from the owner of the infringed intellectual property right a license to sell or use the relevant technology, which license may not be available on reasonable terms or at all
and may involve significant royalty payments;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | pay damages, including treble damages and attorneys fees in some circumstances; or
| | - | -----------------------------------------------------------------------------------



| |  | redesign those products that use the challenged intellectual property.
| | - | ----------------------------------------------------------------------



If we are forced to take any of the foregoing actions, our business could be severely harmed.



Our operations are subject to health and safety and environmental laws that may expose us
to liabilities for noncompliance.



We are subject to a
variety of governmental regulations relating to the use, storage, discharge, handling, manufacture and disposal of all materials present at, or our output from, our facilities, including the toxic or other hazardous chemical by-products of our
manufacturing processes. Environmental claims against us, or our failure to comply with any present or future regulations could result in:



| |  | the assessment of damages or imposition of fines against us;
| | - | ------------------------------------------------------------



| |  | the suspension of production of our products; or
| | - | ------------------------------------------------



| |  | the cessation of our operations.
| | - | --------------------------------



New regulations could require us to purchase costly equipment or to incur other significant expenses. Our failure to control the use or adequately
restrict the discharge of hazardous substances could subject us to future liabilities, which could negatively affect our earnings and financial position.



Any acquisitions we may make could disrupt our business and severely harm our financial condition.



From time to time, we may consider investments in complementary companies, products or technologies. In the event of any
future acquisitions, we could:



| |  | issue stock that would dilute our current stockholders percentage ownership;
| | - | -----------------------------------------------------------------------------



| |  | incur debt;
| | - | -----------



| |  | assume liabilities;
| | - | -------------------



| |  | incur amortization expenses related to tangible assets and other intangible assets; or
| | - | --------------------------------------------------------------------------------------



| |  | incur large and immediate accounting write-offs.
| | - | ------------------------------------------------



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Our operation of any acquired business will also involve numerous risks, including:



| |  | problems integrating the purchased operations, technologies or products;
| | - | ------------------------------------------------------------------------



| |  | unanticipated costs and liabilities for which we are not able to obtain indemnification from the sellers;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | diversion of managements attention from our core business;
| | - | -----------------------------------------------------------



| |  | adverse effects on existing business relationships with customers;
| | - | ------------------------------------------------------------------



| |  | risks associated with entering markets in which we have no or limited prior experience; and
| | - | -------------------------------------------------------------------------------------------



| |  | potential loss of key employees, particularly those of the purchased organizations.
| | - | -----------------------------------------------------------------------------------



You may have difficulty protecting your rights as a stockholder and in enforcing civil liabilities because many of our executive officers
and the majority of the members of our board of directors and the majority of our assets are located outside the United States.



Our principal assets and manufacturing plants are located in the United Kingdom. In addition, most of the members of our board of directors and our
executive officers are residents of jurisdictions other than the United States. As a result, it may be difficult for stockholders to serve process within the United States upon members of our board of directors and our executive officers, or to
enforce against us or members of our board of directors or our executive officers judgments of the U.S. courts, to enforce outside the United States judgments obtained against members of our board of directors or our executive officers in U.S.
courts, or to enforce in U.S. courts judgments obtained against members of our board of directors or our executive officers in courts in jurisdictions outside the United States, in any action, including actions that derive from the civil liability
provisions of the U.S. securities laws. In addition, it may be difficult for our stockholders to enforce, in original actions brought in courts in jurisdictions located outside the United States, liabilities that derive from U.S. securities laws.



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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Our earnings and cash flow are subject to fluctuations in foreign currency exchange rates. Significant factors affecting this risk include our
manufacturing, research and development and administrative cost base, which are predominately incurred in British pounds, and product sales outside the United States, which may be expressed in currencies other than the United States dollar. We
constantly monitor currency exchange rates and match currency availability and requirements whenever possible. We may from time to time enter into forward foreign exchange transactions in order to minimize risk from firm future positions arising
from trading. As at December 31, 2003 and December 31, 2002 we did not have any open forward currency transactions.



Based upon budgeted income and expenditures, a hypothetical increase of 10% in the value of the British pound against all other currencies in the year
ended December 31, 2004 would have no material effect on revenues, which are primarily expressed in United States dollars and would increase operating costs and reduce cash flow by approximately $4.5 million. The same increase in the value of the
British pound would increase the value of the net assets of we expressed in United States dollars by approximately $7.6 million. We have also received orders for revenue that are denominated in euros, therefore an increase in the value of the euro
in relation to the United States dollar would effect the reported value of revenue. The effect of the hypothetical change in exchange rates ignores the effect this movement may have on other variables including competitive risk. If it were possible
to quantify this impact, the results could well be different from the sensitivity effects shown above. In addition, it is unlikely that all currencies would uniformly strengthen or weaken relative to the British pound. In reality, some currencies
may weaken while others may strengthen.



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See the Index included at Item 15. Exhibits and Financial Statements Schedules and Reports on Form 8-K.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None.



ITEM 9A. CONTROLS AND PROCEDURES



Evaluation
of Disclosure Controls and Procedures



An evaluation was
performed under the supervision and with the participation of our management team, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, have concluded that our disclosure controls and procedures were effective as of December 31,
2003 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.



Changes in Internal Controls



There were no changes in our internal control over
financial reporting that occurred during the year ended December, 2003, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting



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PART III



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



The following table sets forth the executive officers of the Company as of March 15, 2004:



|                   |  |     |  |                                                                       
|------------------ |  | --- |  | ----------------------------------------------------------------------
|Nominee            |  | Age |  | Positions and Offices Currently Held with Trikon                      
|John Macneil(1)    |  | 46  |  | Acting President, Chief Executive Officer and Chief Technology Officer
|William J Chappell |  | 42  |  | Senior Vice President, Chief Financial Officer and secretary          
|Ernest Maune       |  | 51  |  | Senior Vice President North America sales                             
|Andrew Noakes      |  | 36  |  | Senior Vice President Europe and Asia sales                           

---

|(1) | On March 10, 2004, Dr. Macneil was appointed acting President and Chief Executive Officer until such time as Dr. Kiwans successor is appointed. See discussion in
Business  Recent Developments.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Dr. Macneil joined Trikon in 1996 and was appointed Vice President of Technology in June 1998. On March 10, 2004, Dr. Macneil was appointed Acting President and Chief Executive Officer. Dr. Macneil served in various technical positions at
Motorola. Subsequently, Dr. Macneil held senior technical positions in a number of research driven organisations both in the United Kingdom and in the United States prior to joining Trikon. Dr. Macneil holds an MBA from Cardiff University in 1996
and gained a PhD in Solid State Physics from Leicester University in 1983.



Mr. Chappell A.C.A. joined Trikon in January 2001 as Chief Financial Officer. Mr. Chappell served with Coopers & Lybrand in various positions between 1983 and 1993, most recently as a Senior Audit Manager in the
San Jose, California office. From 1993 to 1995, he served as Director of Finance at Adac Laboratories. Before joining Trikon, Mr. Chappell served as the Chief Financial Officer of a Canadian public company and a private German company. Mr. Chappell
has a chemistry degree from the University of Leeds, England.



Mr. Maune joined the Company as Senior Vice President North America Sales in May 2003. From May 1997 to February 2003 he served as a senior vice president at Amkor Technology Inc. Mr. Maune holds a bachelors degree from Truman State
University and a masters degree from Prudoe University.



Mr.
Noakes joined Trikon in November 1996 on the acquisition of Electrotech and served in several senior sales and marketing positions and was appointed our Senior Vice President responsible for Sales in Europe and Asia in June 2003. From January 1998
to October 1999 he spent two years in the ion implant business development group at Applied Materials. Prior to November 1996, Mr. Noakes held various sales and engineering positions at Electrotech. Mr. Noakes holds a BSc (hons) degree in Physics
from the University of Sheffield and a masters degree from the University of Bristol.



The following table sets forth the Directors of the Company as at January 31, 2004. Each of the directors term of office expires at our next Annual General Meeting of Stockholders:



|                            |  |     |  |                                                 
|--------------------------- |  | --- |  | ------------------------------------------------
|Name                        |  | Age |  | Positions and Offices Currently Held with Trikon
|Christopher D. Dobson       |  | 67  |  | Director, Chairman of the Board                 
|Nigel Wheeler(1)            |  | 54  |  | Director, Vice Chairman of the Board            
|Jihad Kiwan(2)              |  | 46  |  | Director, President and Chief Executive Officer 
|Robert R. Anderson(3)(4)(5) |  | 66  |  | Director                                        
|Richard M. Conn(1)(3)(4)(5) |  | 59  |  | Director                                        
|In Kil Hwang(6)             |  | 64  |  | Director                                        

---

|(1) | Member of our Executive Committee created March 10, 2004.
|--- | ---------------------------------------------------------

|(2) | On March 10, 2004, Dr. Kiwan departed as President and Chief Executive Officer. Pursuant to the terms of his employment agreement, Dr. Kiwan resigned from the Board of Directors as
of such date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(3) | Member of the Audit Committee
|--- | -----------------------------

|(4) | Member of the Compensation Committee
|--- | ------------------------------------

|(5) | Member of the Nominating and Governance Committee
|--- | -------------------------------------------------

|(6) | Appointed to the Board on October 4, 2003 and appointed to the audit, compensation and nominating committees of the Board on January 16, 2004. On March 10, 2004, Mr. Hwang resigned
from our Board of Directors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Dr. Christopher
D. Dobson. Dr. Dobson joined the Board of Directors as Chairman in November 1996 upon the acquisition of Electrotech. From December 1997 to May 1998, Dr. Dobson was our Chief Executive Officer. Dr. Dobson was appointed Chief Technical Officer in
May 1998 and served in such capacity until his retirement on May 15, 2001. Dr. Dobson continues to serve as the Chairman of the Board of Directors, a non-executive position. Dr. Dobson was a co-founder of Electrotech and was its Chairman from 1971
to November 1996.



Nigel Wheeler. Mr. Wheeler joined
Trikon as a director and the President and Chief Operating Officer in November 1996 upon the acquisition of Electrotech. In October 1998, Mr. Wheeler was appointed Chief Executive Officer. From July 1993 to November 1996, Mr. Wheeler served as
Electrotechs Chief Executive Officer. Effective March 31, 2003, Mr. Wheeler became Vice Chairman of the Board of Directors upon the appointment of Dr. Jihad Kiwan as Trikons President and Chief Executive Officer.



Dr. Jihad Kiwan. Dr. Jihad Kiwan was elected to the Board of Directors
and appointed President and Chief Executive Officer of Trikon effective March 31, 2003. Prior to joining Trikon, Dr. Kiwan was with Amkor Wafer Fabrication Services from 1997, and served as the Vice President and General Manager. Dr. Kiwan
previously worked for SCI Systems and Hewlett Packard. As noted above in Business  Recent Developments, on March 10, 2004, Dr. Kiwan departed as President and Chief Executive Officer. Pursuant to the terms of his employment
agreement, Dr. Kiwan resigned from the Board of Directors as of such date.



Robert R. Anderson. Mr. Anderson was elected to the Board of Directors in April 2000. Mr. Anderson is a private investor. From January 1994 to January 31, 2001, he was Chairman of Silicon Valley Research, Inc.,
a semiconductor design automation software company, and its Chief Executive Officer from December 1996 to August 1998, and from April 1994 to July 1995. He also served as Chairman and Chief Executive Officer of Yield Dynamics, Inc., a private
semiconductor process control software company, from October 1998 to October 2000, and presently serves as a director. In 1975, Mr. Anderson co-founded KLA Instruments Corporation, the predecessor to KLA-Tencor (KLA), a supplier of
semiconductor process control systems, from which he retired in 1994. He served as Vice-Chairman of KLA from November 1991 to March 1994, and as Chairman of KLA from May 1985 to November 1991. Prior to that, Mr. Anderson served as Chief Operating
Officer and Chief Financial Officer of KLA. In addition to serving as a director of Trikon, Mr. Anderson currently serves as a director of MKS Instruments, Inc., Metron Technology N.V., and Aehr Test Systems, Inc. Furthermore, he serves as a
director for three other private companies, and as a trustee of Bentley College.



Richard M. Conn. Mr. Conn was elected to the Board of Directors in January 1998. Mr. Conn formed Business Development Consulting in early 1997 and serves as a consultant in the semiconductor equipment industry.
Prior to forming Business Development Consulting, Mr. Conn was a Vice President of Sales at KLA from 1984 until 1996. During his tenure at KLA, Mr. Conn was a member of the boards of directors of KLAs subsidiaries in the United Kingdom, France
and Germany. Mr. Conn has held several other positions in the semiconductor industry at companies that include Eaton Semiconductor Equipment, Applied Materials and ITT Semiconductors.



In Kil Hwang. Dr. Hwang joined the Board of Directors in October 2003. He was appointed President and Chief Executive
Officer of Anam Semiconductor in December 1991 and became Vice Chairman in May 1998. He was appointed Vice Chairman of Amkor Korea in January 2001 until his retirement in September 2001. Dr. Hwang has a PhD in Physics from the University of
Wyoming and a BS from the National University of Seoul. On March 10, 2004, Dr. Hwang resigned from the Board of Directors.



30



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Audit Committee Financial Expert



The Board of Directors has determined that Robert Anderson is an audit committee financial expert as defined by Item 401(h)
of Regulation S-K of the Securities Exchange Act of 1934, as amended (the Exchange Act) and is independent within the meaning of Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.



Code of Ethics



Trikon has adopted a code of business conduct and ethics for directors, officers (including Trikons principal
executive officer, principal financial officer and controller) and employees, known as The Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available on Trikons website at www.Trikon.com. Trikon intends to
satisfy the disclosure requirements under Item 10 of Form 8-K regarding amendment to, or waiver from, a provision of the code of business conduct and ethics either by filing a Form 8-K or posting such information on our website at www.Trikon.com,
provided such method of disclosure is then in compliance with the rules of the NASDAQ National Market and the rules of the Securities and Exchange Commission.



Compliance with SEC Reporting Requirements



Section 16(a) of the Exchange Act requires Trikons directors and executive officers and persons beneficially owning more than ten percent of a class
of Trikons capital stock to file certain reports of beneficial ownership and changes in beneficial ownership (Forms 3, 4 and 5) with the SEC. Based solely on its review of copies of Forms 3, 4 and 5 available to it, or written representations
that no Forms 5 were required, Trikon believes that all required Forms concerning 2003 beneficial ownership were filed on time by all directors and executive officers.



ITEM 11. EXECUTIVE COMPENSATION



Summary of
Cash and Certain Other Compensation



The following table
sets forth all compensation received for services rendered to Trikon in all capacities for the years ended December 31, 2003, 2002 and 2001, by (i) each person who served as Chief Executive Officer of Trikon during the year ended December 31, 2003
and (ii) each of the other executive officers of Trikon who were serving as executive officers at December 31, 2003 and whose total compensation exceeded $100,000 (collectively, the Named Executive Officers). Perquisites amounting in
aggregate to the lesser of $50,000 or 10% of the total annual salary and bonus reported for the named executive officer are not disclosed. For the purpose of calculating salaries and other compensation paid in British pounds to Nigel Wheeler,
William Chappell, Andrew Noakes and John Macneil, the average rate of exchange between the British Pound and the US dollar of $1.64, $1.504 and $1.4438 for each British pound for the years ended December, 31, 2003, 2002 and 2001, respectively, has
been used. For the purpose of calculating salaries and other compensation paid in Euro to Jihad Kiwan, the average rate of exchange between the Euro and the US dollar of $1.13 for the year ended December 31, 2003 has been used.



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##### Table of Contents

Summary Compensation Table



|                                                                                                                |  |              |  |                       |     |                        |                    |                           |                           |  |                                   |  |                     |     
|--------------------------------------------------------------------------------------------------------------- |  | ------------ |  | --------------------- | --- | ---------------------- | ------------------ | ------------------------- | ------------------------- |  | --------------------------------- |  | ------------------- | ----
|                                                                                                                |  |              |  | Annual Compensation   |     | Long Term Compensation |                    | All Other Compensation($) |                          
|                                                                                                                |  | FiscalYear   |  | Salary($)             |     |                        | Bonus($)           |                           | RestrictedStockAwards ($) |  | Securities Underlying Options/SAR | 
|Jihad Kiwan(1) Former Director, President and Chief
Executive Officer                                           |  | 2003         |  | 304,539               |     |                        | 36,160             |                           |                          |  | 200,000                           |  | 11,667              | (5) 
|                                                                                                                |  |              |  |                       |     |                       
|John Macneil(12) Senior Vice President, Technology,
Chief Technology Officer and Acting Chief Executive Officer |  | 200320022001 |  | 119,845109,869108,285 |     |                        | 18,45022,557      |                           |                        |  | 15,00015,0007,000                 |  | 22,72020,09321,221  | (11)
|                                                                                                                |  |              |  |                       |     |                       
|Nigel Wheeler(2) Director, and Former President, Chief
Operating Officer and Chief Executive Officer            |  | 200320022001 |  | 274,040380,581375,388 | (6) |                        | 42,64039,10037,539 |                           |                        |  | 50,00050,00050,000                |  | 68,57496,369100,338 | (7) 
|                                                                                                                |  |              |  |                       |     |                       
|William J Chappell Senior Vice President, Chief
Financial Officer                                               |  | 200320022001 |  | 185,258141,593129,942 |     |                        | 57,07229,02312,960 |                           |                         |  | 15,00015,00037,000                |  | 36,84133,79297,522  | (8) 
|                                                                                                                |  |              |  |                       |     |                       
|Ernest Maune(3) Senior Vice President Sales North
America                                                       |  | 2003         |  | 124,236               |     |                        | 9,500              |                           |                          |  | 30,000                            |  | 13,659              | (9) 
|                                                                                                                |  |              |  |                       |     |                       
|Andrew Noakes(4) Senior Vice President Sales Europe and
Asia                                                    |  | 2003         |  | 95,869                |     |                        | 40,737             |                           |                           |  | 15,250                            |  | 15,388              | (10)

---

|(1) | Dr. Kiwan was appointed President and Chief Executive Officer March 31, 2003. On March 10, 2004, Dr. Kiwan departed as President and Chief Executive Officer.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr. Wheeler was appointed Chief Executive Officer in October 1998 until the appointment of Dr. Kiwan on March 31, 2003. Mr. Wheeler was appointed Vice Chairman on March 31, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr. Maune was appointed Senior Vice President North America Sales on May 12, 2003.
|--- | ----------------------------------------------------------------------------------

|(4) | Mr. Noakes was appointed Senior Vice President Europe and Asia Sales on June 1, 2003.
|--- | -------------------------------------------------------------------------------------

|(5) | Of this amount $11,667 represents a housing allowance.
|--- | ------------------------------------------------------

|(6) | Includes $50,861 of compensation as Vice Chairman.
|--- | --------------------------------------------------

|(7) | Of this amount $26,566 represents a car and fuel allowance and $38,287 represents pension contributions on behalf of this officer.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(8) | Of this amount $20,589 represents a car and fuel allowance and $13,694 represents pension contributions on behalf of this officer.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(9) | Of this amount $8,864 represents a car and fuel allowance and $4,795 represents pension contributions on behalf of this officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------

|(10) | Of this amount $11,782 represents a car and fuel allowance and $3,606 represents pension contributions on behalf of this officer.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|(11) | Of this amount $16,146 represents a car and fuel allowance and $6,022 represents pension contributions on behalf of this officer.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|(12) | On March 10, 2004, Dr. Macneil was appointed acting President and Chief Executive Officer until Dr. Kiwans successor is appointed.
|---- | -----------------------------------------------------------------------------------------------------------------------------------



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Option Grants in Last Fiscal Year



The following table sets forth each grant of stock options made during the year ended December 31, 2003 to each of the Named
Executive Officers. No stock appreciation rights (SARs) have ever been granted by Trikon.



|                    |  |                                                 |  |                                                               |    |                        |     |                  |  |                                                                                                     |  |          
|------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------- | -- | ---------------------- | --- | ---------------- |  | --------------------------------------------------------------------------------------------------- |  | ---------
|                    |  | Number ofSecuritiesUnderlyingOptionsGranted (#) |  | Percent of TotalOptions Grantedto Employees inFiscal Year (%) |    | ExercisePrice($/sh)(1) |     | Expiration Date  |  | Potential RealizableValue at Assumed Annual Rates of StockPrice Appreciation for Option Term(2) ($)
|                    |  |                                                 |  |                                                               | 5% |                        | 10%
|Jihad Kiwan         |  | 200,000                                         |  | 22.8                                                          |    | 3.23                   |     | March 31, 2013   |  | 412,769                                                                                             |  | 1,029,724
|John Macneil        |  | 15,000                                          |  | 1.7                                                           |    | 5.04                   |     | January 29, 2013 |  | 47,552                                                                                              |  | 120,506  
|Nigel Wheeler       |  | 50,000                                          |  | 5.7                                                           |    | 4.33                   |     | July 9, 2013     |  | 136,178                                                                                             |  | 345,101  
|William J. Chappell |  | 15,000                                          |  | 1.7                                                           |    | 5.04                   |     | January 29, 2013 |  | 47,552                                                                                              |  | 120,506  
|Ernest Maune        |  | 30,000                                          |  | 3.4                                                           |    | 3.30                   |     | May 16, 2013     |  | 62,271                                                                                              |  | 157,806  
|Andrew Noakes       |  | 5,250                                           |  | 0.6                                                           |    | 3.10                   |     | May 20, 2013     |  | 10,237                                                                                              |  | 25,942   
|Andrew Noakes       |  | 10,000                                          |  | 1.1                                                           |    | 3.64                   |     | June 12, 2013    |  | 22,895                                                                                              |  | 58,022   

---

|(1) | Represents the fair market value of the underlying shares of Common Stock at the time of grant.
|--- | -----------------------------------------------------------------------------------------------

|(2) | Represents the value of the shares of Common Stock issuable upon the exercise of the option, assuming the stated rates of price appreciation for ten years, compounded annually, with
the aggregate exercise price deducted from the final appreciated value. Such annual rates of appreciation are for illustrative purposes only, are based on requirements of the SEC and do not reflect Trikons estimate of future stock
appreciation. No assurance can be given that such rates of appreciation, or any appreciation, will be achieved.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values



The following table sets forth the number of exercisable and unexercisable options held by each of the Named Executive
Officers at December 31, 2003.



|                    |  |                                |             |                      |               |                                                 |             |                                                                    |               |         |  |        
|------------------- |  | ------------------------------ | ----------- | -------------------- | ------------- | ----------------------------------------------- | ----------- | ------------------------------------------------------------------ | ------------- | ------- |  | -------
|Name                |  | Shares Acquiredon Exercise (#) |             | Value Realized(1)($) |               | Number of UnexercisedOptions at Fiscal Year-End |             | Value of Unexercised In-the-Money Options at FiscalYear End ($)(2)
|                    |  |                                | Exercisable |                      | Unexercisable |                                                 | Exercisable |                                                                    | Unexercisable
|Jihad Kiwan         |  |                               |             |                     |               |                                                |             | 200,000                                                            |               |        |  | 492,000
|John Macneil        |  | 6,250                          |             | 36,540               |               | 18,501                                          |             | 28,499                                                             |               |        |  | 9,750  
|Nigel Wheeler       |  | 117,500                        |             | 487,393              |               | 193,189                                         |             | 112,499                                                            |               | 323,945 |  | 68,000 
|William J. Chappell |  |                               |             |                     |               | 33,500                                          |             | 33,500                                                             |               |        |  | 9,750  
|Ernest Maune        |  |                               |             |                     |               |                                                |             | 30,000                                                             |               |        |  | 71,700 
|Andrew Noakes       |  |                               |             |                     |               | 3,101                                           |             | 17,049                                                             |               |        |  | 34,097 

---

|(1) | The value realized equals the difference between the option exercise price and the fair market value of Trikons common stock on the date of exercise, multiplied by the number
of shares for which the option was exercised
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The value of unexercised in-the-money options equals the difference between the option exercise price and the closing price of Trikonss common stock on December 31, 2003,
multiplied by the number of shares underlying the options. The closing price of Trikons common stock on December 31, 2003, as reported on the Nasdaq National Market, was $5.69 per share.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Employment Agreements



Jihad Kiwan. Trikon entered into an employment agreement with Dr. Kiwan, effective March 31, 2003, pursuant to which
Dr. Kiwan was nominated as a director and appointed the President and Chief Executive Officer for the term of the agreement. The agreement continues until terminated by either party, provided that



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Trikon may only terminate the agreement (other than for cause) upon prior notice, which notice period (or severance payment in lieu of notice) varies from
three to eighteen months depending on Dr. Kiwans length of service. In the event of change of control, Dr. Kiwan is entitled to resign and still receive certain payments which can be as high as eighteen months of salary and bonus. Please see
Business  Recent Developments.



Dr. Kiwan
received a base annual salary of 320,000 Euros and a bonus that may vary from year to year as determined by the Board of Directors depending upon the strategic goals of Trikon. At the time of his hiring, Dr. Kiwan received a grant of options to
purchase 200,000 shares of common stock, which vest in four equal annual installments.



Pursuant to offer letters as detailed below, the Company has provided termination benefits to certain named executive officers. Pursuant to an offer letter dated October 12, 2000, Trikon has agreed to provide Mr.
Chappell with six months notice of termination (or severance payment in lieu of notice). Pursuant to an offer letter dated September 1, 2003, upon termination of employment (other than for gross (serious) misconduct) Trikon has agreed to pay Mr.
Maune severance in an amount varying from six months to one year of his base salary. The applicable severance payment amount is based on Mr. Maunes length of service at the time of termination. In the event of a change of control, Mr. Maune is
entitled to resign and receive a termination payment equal to the then applicable severance payment. Pursuant to an offer letter dated June 3, 2003, Trikon has agreed to provide Mr. Noakes with six months notice of termination (or severance payment
in lieu of notice). Pursuant to an offer letter dated November 3, 1995, as amended on May 17, 1999, Trikon has agreed to provide Mr. MacNeil with six months notice of termination of employment (or severance payment in lieu notice).



Director Compensation



Employee members of the Board of Directors do not receive additional compensation for their services as directors.
Non-employee directors (other than the Chairman of the Board of Directors) earn an annual retainer of $15,000 and receive $2,000 for attending a meeting of the board of directors in person, $750 for attending a meeting of the board of directors by
telephone and $750 for attending a committee meeting in person or by telephone.



The Chairman of the Board of Directors, if he is not an executive of the Company, receives an annual retainer of $30,000 and receives $4,000 for attending a meeting of the board of directors in person and $1,500 for
attending meetings of the board of directors by telephone, and $1,500 for attending meetings of committees of the board of directors in person or by telephone.



Non-employee directors are also reimbursed reasonable expenses in connection with attendance at board and committee meetings.



In addition, each non-employee director participates in an equity
compensation plan, the 1998 Directors stock option plan. When first elected or appointed to the Board of Directors as a non-employee director (if such director previously was not an executive officer of Trikon), such director will receive, at
the time of such initial election or appointment, a stock option to purchase 20,000 shares of common stock, and at each annual stockholders meeting thereafter will receive a stock option to purchase 8,000 (or, in the case of a non executive Chairman
of the Board of Directors, 12,000) shares of common stock.



The
initial option grant on first election or appointment, vest in a series of four (4) successive equal annual installments upon the directors completion of each year of service on the board of directors over the four (4) year period measured
from the date of grant, and the subsequent annual grants vest upon completion of one year of service, or the next annual meeting of stockholders, whichever is earlier.



In addition to his compensation as a non employee Chairman as described above, Dr. Dobson, when he was appointed Chief
Executive Officer of Trikon in May 1998, entered into a letter agreement with the Company



34



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##### Table of Contents

which provided certain benefits based upon the continued performance of services to Trikon either as (i) an employee, (ii) a non employee member of the Board
or (iii) Independent Consultant. The benefits are a restricted stock award and a special acquisition bonus as described below.



Dr. Dobson received 1,149,281 restricted shares of common stock when Trikon consummated a debt for equity exchange. The restricted shares vested in full
on May 14, 2003.



Dr. Dobson will receive a special acquisition
bonus in the event of a transfer of more than 50% of Trikons voting rights in a direct sale or merger of Trikon or other disposition of more than 80% of the assets of Trikon. The size of the bonus payable varies with the amount of
consideration paid in the transaction as set forth in the table below, and no bonus will be earned if the total purchase price is valued at less than $250 million.



|                      |  |                          |  
|--------------------- |  | ------------------------ | -
|Sales Price ($)       |  | CumulativePercentage (%) |  
|At least $250 million |  | 0.5                      | %
|At least $260 million |  | 1.0                      |  
|At least $270 million |  | 2.0                      |  
|At least $280 million |  | 2.5                      |  
|$300 million or more  |  | 3.0                      |  



Mr. Wheeler was
appointed Vice Chairman of the Board of Directors on March 31, 2003 and entered into a consulting contract with the company on June 4, 2003. Under the terms of the consulting agreement with Trikon, Mr. Wheeler receives 60,000 British Pounds ($98,400
at the average exchange rate for fiscal 2003) for acting as Vice Chairman and providing consulting services to the Board of Directors. In addition to this annual compensation Mr. Wheeler is provided a company car and fuel together with other usual
benefits paid to UK employees. The consulting arrangement is for a two year period commencing July 1, 2003 and can be terminated with three months notice by either party. Mr. Wheeler does not receive the non-employee board member payments described
above.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



Equity Compensation plan information



The following table provides information as of December 31, 2003 with respect to shares of our Common Stock that may be issued upon the exercise of
options, granted to employees, consultants or members of our Board of Directors under all of our existing equity compensation plans, including the 1991 Stock Option Plan and the 1998 Directors Stock Option Plan. No warrants or other rights have been
issued to members of our employees, consultants or Board of Directors.



|                                                           |  |                                                                                          |  |                                                                          |      |                                                                                            |       
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------ | ---- | ------------------------------------------------------------------------------------------ | ------
|Plan Category                                              |  | Number of Securities to beissued upon exercise ofoutstanding options, warrantsand rights |  | Weighted-averageexercise price ofoutstanding options,warrants and rights |      | Number of securitiesremaining availablefor future issuanceunder equity  compensation plans
|Equity compensation plans approved by security holders     |  | 1,827,483                                                                                |  | $                                                                        | 7.77 |                                                                                            | 30,150
|Equity compensation plans not approved by security holders |  |                                                                                         |  |                                                                          |     |                                                                                            |      
|                                                           |  |                                                                                          |  |                                                                          |      |                                                                                            |       
|Total                                                      |  | 1,827,483                                                                                |  | $                                                                        | 7.77 |                                                                                            | 30,150
|                                                           |  |                                                                                          |  |                                                                          |      |                                                                                            |       



35



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##### Table of Contents

Security Ownership of certain beneficial owners and Management



To the extent known by Trikon, the following table sets forth certain
information regarding beneficial ownership of Trikon common stock as of January 31, 2004 by: (i) each person (or group or affiliated persons) who is known by Trikon to own beneficially more than 5% of Trikons outstanding shares of common
stock, (ii) each of Trikons directors, (iii) each of the named executive officers and (iv) Trikons directors and executive officers as a group. For purposes of calculating the percentage beneficially owned 15,741,671 shares of Common
Stock outstanding as of January 31, 2004 were used. Except where otherwise noted and subject to applicable community property laws, to Trikons knowledge the persons noted below have sole voting and investment power with respect to all shares
of common stock held by them.



|                                                                                                                    |  |                                        |      |  |                        |  
|------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- | ---- |  | ---------------------- | -
|Name and Address of Beneficial Owner                                                                                |  | Shares ofCommon StockBeneficiallyOwned |      |  | Percent ofCommon Stock |  
|Specialist Situations Funds(1) 153 East 53rdStreet New York, New York 10022                                         |  | 2,353,115                              |      |  | 14.9                   | %
|                                                                                                                    |  |                                       
|Spinner Global Technology Fund, Limited(2) C/O Citco NV, Kaya Flamboyan P.O. Box
812, Curacao Netherlands, Antilles |  | 1,274,030                              |      |  | 8.1                    | %
|                                                                                                                    |  |                                       
|Christopher D. Dobson                                                                                               |  | 1,186,615                              | (3)  |  | 7.5                    | %
|                                                                                                                    |  |                                       
|Jihad Kiwan**                                                                                                       |  | 65,000                                 | (4)  |  | *                      |  
|                                                                                                                    |  |                                       
|Robert Anderson                                                                                                     |  | 34,750                                 | (5)  |  | *                      |  
|                                                                                                                    |  |                                       
|Richard M. Conn                                                                                                     |  | 22,800                                 | (6)  |  | *                      |  
|                                                                                                                    |  |                                       
|In Kil Hwang**                                                                                                      |  | 0                                      | (12) |  | *                      |  
|                                                                                                                    |  |                                       
|A Nigel Wheeler                                                                                                     |  | 205,689                                | (7)  |  |                        |  
|                                                                                                                    |  |                                       
|William J. Chappell                                                                                                 |  | 33,500                                 | (8)  |  | *                      |  
|                                                                                                                    |  |                                       
|John Macneil                                                                                                        |  | 20,001                                 | (9)  |  | *                      |  
|                                                                                                                    |  |                                       
|Ernest Maune                                                                                                        |  | 0                                      |      |  | *                      |  
|                                                                                                                    |  |                                       
|Andrew Noakes                                                                                                       |  | 3,175                                  | (10) |  | *                      |  
|                                                                                                                    |  |                                       
|All directors and executive officers as a group(10 persons)**                                                       |  | 1,571,530                              | (11) |  | 10.0                   | %

---

|* | Less than 1%
|- | ------------

|** | Information is at January 31, 2004. As of March 15, 2004 we have 8 directors and executive officers who collectively own as a group 1,506,530 shares of our common stock or
approximately 9.6%. See Business  Recent Developments.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | The number of common shares beneficially owned by Special Situations funds is based on information in a schedule 13G filed by Special Situations fund on February 12, 2004 and
includes 350,000 shares of common stock issuable on currently exercisable warrants.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The number of common shares beneficially owned by Spinner Global Technology (Spinner) is based on information in a schedule 13F filed by Spinner on February 17, 2004 and
includes 92,353 shares of common stock issuable on currently exercisable warrants.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 12,000 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



36



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##### Table of Contents

|(4) | Includes 50,000 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004. On March 10, 2004, Dr. Kiwan departed as
President and Chief Executive Officer and resigned as a member of the Board of Directors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 14,750 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 22,800 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 205,689 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Includes 33,500 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 20,001 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 3,175 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|---- | ------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Includes 384,714 shares of common stock issuable under stock options currently exercisable or exercisable within 60 days of January 31, 2004
|---- | --------------------------------------------------------------------------------------------------------------------------------------------

|(12) | On March 10, 2004, Dr. Hwang resigned as a member of our Board of Directors.
|---- | ----------------------------------------------------------------------------



ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



None



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The following table shows the fees paid or accrued by Trikon for the audit and other services provided by Ernst & Young LLP for fiscal 2003 and 2002.



|               |  |       |     |       |   |    
|-------------- |  | ----- | --- | ----- | - | ---
|               |  | 2003  |     | 2002 
|               |  | $000 |     | $000
|Audit          |  |       | 220 |       |   | 188
|Audit related  |  |       | 16  |       |   | 33 
|Tax fees       |  |       | 5   |       |   | 403
|All other fees |  |       |    |       |   |   
|               |  |       |     |       |   |    
|Total          |  | $     | 241 |       | $ | 624
|               |  |       |     |       |   |    



The audit committee
approves all services provided by Ernst & Young LLP prior to their incurrence.



37



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##### Table of Contents

PART IV



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) The following documents are filed as part of this annual report on form 10K



(1) Financial Statements



|                                                                                                     |  |    
|---------------------------------------------------------------------------------------------------- |  | ---
|Report of Independent Auditors                                                                       |  | F-2
|Consolidated Balance Sheets as at December 31, 2003, and 2002.                                       |  | F-3
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001           |  | F-4
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-5
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F-6
|Notes to Consolidated Financial Statements                                                           |  | F-7



(2) Financial Statement Schedules



Schedule II  Valuation and Qualifying Accounts.



All other schedules for which provision is made in the
applicable accounting requirements of the Securities and Exchange Commission are not required under the related instructions or are not applicable and therefore have been omitted.



(3) List of Exhibits



|    |  |                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 
|2.1 |  | Share Purchase Agreement, dated July 17, 1996 (the Share Purchase Agreement), among the Company, Electrotech and the shareholders of Electrotech. (Previously filed as an exhibit
to the Companys Current Report on Form 8-K on November 27, 1996, and incorporated by reference herein.)                                                                       
|    | 
|2.2 |  | Amendment No. 1 to the Share Purchase Agreement dated September 9, 1996. (Previously filed as an exhibit to the Companys Current Report on Form 8-K on November 27, 1996, and
incorporated by reference herein.)                                                                                                                                                  
|    | 
|2.3 |  | Amendment No. 2 to the Share Purchase Agreement dated October 16, 1996. (Previously filed as an exhibit to the Companys Current Report on Form 8-K on November 27, 1996, and incorporated
by reference herein.)                                                                                                                                                   
|    | 
|2.4 |  | Amendment No. 3 to the Share Purchase Agreement dated November 13, 1996. (Previously filed as an exhibit to the Companys Current Report on Form 8-K on November 27, 1996, and
incorporated by reference herein.)                                                                                                                                                  
|    | 
|2.5 |  | Agreement and Plan of Merger, between Trikon Technologies, Inc., a Delaware corporation, and Trikon Technologies, Inc., a California corporation. (Previously filed as Exhibit C to the
Registrants Proxy Statement for the 2002 Annual Meeting of Stockholders, and incorporated herein by reference.)                                                           
|    | 
|3.1 |  | Certificate of Incorporation of Trikon Technologies, Inc., a Delaware corporation. (Previously filed as Exhibit D to the Registrants Proxy Statement for the 2002 Annual Meeting of
Stockholders, and incorporated herein by reference.)                                                                                                                          
|    | 
|3.2 |  | By-laws of Trikon Technologies, Inc., a Delaware corporation. (Previously filed as Exhibit 3.3 to the Registrants Quarterly report on form 10-Q for the quarterly period ended June 30,
2003.)                                                                                                                                                                    
|    | 
|4.1 |  | Common Stock Purchase Warrant, dated May 23, 2001, granted by Trikon Technologies, Inc. to Spinner Global Technology Fund, Ltd. (Previously filed as an exhibit to the Companys Current
Report on Form 8-K dated May 24, 2001, and incorporated by reference herein.)                                                                                             
|    | 
|4.2 |  | Form of redeemable warrant to purchase shares of common stock dated October 22, 2003 issued in connection with the sale of common stock and warrants to Special Situations Fund III LP and
certain of its affiliate funds (previously filed as an exhibit to the Companys Current Report on Form 8-K dated October 22, 2003 and incorporated by reference herein.)



38



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##### Table of Contents

|       |  |                                                                                                                                                                                                                                                                                                                        
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.1*  |  | 1991 Stock Option Plan of the Company, as amended to date. (Previously file as an exhibit to the Companys Proxy Statement for the 2002 Annual Meeting of Stockholders, and incorporated
herein by reference.)                                                                                                         
|       | 
|10.2*  |  | Employment agreement dated as of March 18, 2003 between the Company and Jihad Kiwan (previously filed as an exhibit to the Companys Current Report on Form 8-K on March 27, 2003, and
incorporated by reference herein)                                                                                               
|       | 
|10.3   |  | Registration Agreement dated as of November 15, 1996 between the Company and Christopher D. Dobson. (Previously filed as an exhibit to the Companys Current Report on Form 8-K on
November 27, 1996, and incorporated by reference herein.)                                                                           
|       | 
|10.4   |  | International Technology License and Sales Agreement between the Company and Anelva Corporation, dated February 7, 1992. (Previously filed as an exhibit to Amendment No. 3 to the
Companys Registration Statement on Form S-1, and incorporated herein by reference.)                                               
|       | 
|10.5   |  | Lease dated July 5, 1985 concerning the Companys facilities at Newport, Gwent, United Kingdom, as assigned to Electrotech Limited effective January 19, 1995. (Previously filed as an
exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 1996, and incorporated by reference herein.)
|       | 
|10.6   |  | M0RI Source Technology License Agreement between the Company and Applied Materials. (Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference.)                                                                  
|       | 
|10.7   |  | FORCEFILL Technology License Agreement between Trikon Equipment Limited and Applied Materials. (Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference.)                                                       
|       | 
|10.8   |  | FORCEFILL Technology License Agreement between Trikon Technologies Limited and Applied Materials. (Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference.)                                                    
|       | 
|10.9   |  | M0RI Source Technology License Agreement between the Company and Lam Research Corporation. (Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, and
incorporated herein by reference.)                                                           
|       | 
|10.10* |  | Letter Agreement, dated as of May 14, 1998, between Christopher D. Dobson and the Company. (Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998, and incorporated herein by reference.)                                                                  
|       | 
|10.11* |  | 1998 Directors Stock Option Plan, as amended to date. (Previously filed as Exhibit 10.11 to the Registrants Quarterly report on Form 10-Q for the quarterly period ended June 30, 2003
and incorporated herein by reference).                                                                                         
|       | 
|10.12  |  | Form of Stock Purchase Agreement and Schedule of Investors dated April 17, 2002 (previously filed as an exhibit to current report on Form 8-K filed April 19, 2002)                                                                                                                                                    
|       | 
|10.13  |  | Form of Stock Purchase Agreement dated October 22, 2003 (previously filed as an exhibit to current report on Form 8-K filed October 22, 2003 and incorporated herein by
reference)                                                                                                                                     
|       | 
|10.14* |  | Letter agreement with Nigel Wheeler dated June 4, 2003 (previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003, and
incorporated herein by reference.)                                                                                                      
|       | 
|10.15  |  | Term loan agreement dated July 17, 2003 between the Company and Lloyds TSB plc (previously filed as an exhibit to current report on Form 8-K filed July 22, 2003 and incorporated herein by
reference)                                                                                                                 



39



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##### Table of Contents

|       |  |                                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       | 
|10.16¶ |  | Letter of amendment dated March 1, 2004 to term loan agreement dated July 17, 2003 between the Company and Lloyds TSB                                                                
|       | 
|21¶    |  | Subsidiaries of the Registrant                                                                                                                                                       
|       | 
|23.1¶  |  | Consent of Ernst & Young LLP                                                                                                                                                         
|       | 
|24.1** |  | Power of Attorney                                                                                                                                                                    
|       | 
|31.1¶  |  | Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act                                                                            
|       | 
|31.2¶  |  | Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act                                                                            
|       | 
|32.1¶  |  | Certificate of Chief Executive Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
1350)
|       | 
|32.2¶  |  | Certificate of Chief Financial Officer furnished pursuant to Rule 13a-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C.
1350)

---

|* | Indicates a management contract or compensatory plan or arrangement, as required by Item 14(a)3.
|- | ------------------------------------------------------------------------------------------------

|** | Set forth in the signature page hereto.
|-- | ---------------------------------------

| | Certain portions of this exhibit have been omitted from the copy filed and are subject to an order granting confidential treatment with respect thereto.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|¶ | Filed herewith.
|- | ---------------



(b) Reports on Form 8-K



We filed a report on Form 8-K on October 17, 2003 relating to the signing of definitive agreements for the private sale of shares of common stock and warrants to purchase additional shares of common stock.



We filed a report on form 8-K on October 23, 2003 announcing the completion
of the private sale of our shares of common stock and warrants to purchase additional shares of common stock.



We submitted a report on form 8-K on October 30, 2003 furnishing a press release announcing our earnings for the third quarter ended September 30, 2003.



40



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



Date:  March 15, 2004



TRIKON TECHNOLOGIES, INC.By:

/s/    JOHN
MACNEILJohn MacneilActing President and Chief Executive OfficerBy:

/s/    WILLIAM J.
CHAPPELLWilliam J. ChappellSenior Vice President and Chief Financial Officer




POWER OF
ATTORNEY



KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints John Macneil and William J. Chappell, and each of them with all power to act without the other, his true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective amendments) to this Annual Report on Form 10-K and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, or any of them, shall do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                  |  |                                                                                                           |  |               
|------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                         |  | Title                                                                                                     |  | Date          
|/s/    JOHN
MACNEILJohn
Macneil                   |  | Acting President and Chief Executive Officer (Principal Executive Officer)                                |  | March 15, 2004
|                                                  |  |                                                                                                          
|/s/    WILLIAM J.
CHAPPELLWilliam J.
Chappell     |  | Senior Vice President, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) |  | March 15, 2004
|                                                  |  |                                                                                                          
|/s/    CHRISTOPHER D.
DOBSONChristopher D.
Dobson |  | Chairman of the Board, Director                                                                           |  | March 15, 2004
|                                                  |  |                                                                                                          
|/s/    A. NIGEL
WHEELERA. Nigel
Wheeler           |  | Vice Chairman, Director                                                                                   |  | March 15, 2004
|                                                  |  |                                                                                                          
|/s/    RICHARD M.
CONNRichard M.
Conn             |  | Director                                                                                                  |  | March 15, 2004
|                                                  |  |                                                                                                          
|/s/    ROBERT R.
ANDERSONRobert R.
Anderson       |  | Director                                                                                                  |  | March 15, 2004



41



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##### Table of Contents

INDEX TO FINANCIAL STATEMENTS



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Report of Independent Auditors                                                                       |  | F-2 
|Consolidated Balance Sheets as at December 31, 2003, and 2002                                        |  | F-3 
|Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001           |  | F-4 
|Consolidated Statements of Stockholders Equity for the years ended December 31, 2003, 2002 and 2001 |  | F-5 
|Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001           |  | F-6 
|Notes to Consolidated Financial Statements                                                           |  | F-7 



F-1



---

##### Table of Contents

REPORT OF INDEPENDENT AUDITORS



To: The
Stockholders and the Board of Directors Trikon Technologies, Inc.



We have audited the accompanying consolidated balance sheets of Trikon Technologies, Inc. as of December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders equity and cash flows for each of the three
years in the period ended December 31, 2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and schedule based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of Trikon Technologies, Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its consolidated cash flows for each of the three years in
the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.



/s/    Ernst & Young LLP

Bristol, England



March 15, 2004



F-2



---

##### Table of Contents

TRIKON TECHNOLOGIES, INC.



CONSOLIDATED BALANCE SHEETS

(In thousands, except for share data)



|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                                                                      |  | December 31, |         
|                                                                                                                                                                      |  | 2003         |          |   | 2002 |  
|Assets                                                                                                                                                                |  |              |          |   |      |   |          |  
|Current assets                                                                                                                                                        |  |              |          |   |      |   |          |  
|Cash and cash equivalents                                                                                                                                             |  | $            | 31,646   |   |      | $ | 42,557   |  
|Accounts receivable, less allowances of $190 and $149 at December 31, 2003 and 2002, respectively                                                                     |  |              | 11,287   |   |      |   | 8,948    |  
|Inventories                                                                                                                                                           |  |              | 15,257   |   |      |   | 20,486   |  
|Prepayments and other current assets                                                                                                                                  |  |              | 4,855    |   |      |   | 2,671    |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total current assets                                                                                                                                                  |  |              | 63,045   |   |      |   | 74,662   |  
|Property, plant and equipment, net                                                                                                                                    |  |              | 16,896   |   |      |   | 19,636   |  
|Demonstration systems, net                                                                                                                                            |  |              | 2,814    |   |      |   | 2,669    |  
|Other assets                                                                                                                                                          |  |              | 374      |   |      |   | 221      |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total assets                                                                                                                                                          |  | $            | 83,129   |   |      | $ | 97,188   |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Liabilities and stockholders equity                                                                                                                                  |  |              |          |   |      |   |          |  
|Current liabilities:                                                                                                                                                  |  |              |          |   |      |   |          |  
|Accounts payable                                                                                                                                                      |  |              | 5,785    |   |      |   | 3,595    |  
|Accrued expenses                                                                                                                                                      |  |              | 1,399    |   |      |   | 915      |  
|Warranty and related expenses                                                                                                                                         |  |              | 1,285    |   |      |   | 1,426    |  
|Current portion of long-term debt and capital lease obligations                                                                                                       |  |              | 11,736   |   |      |   | 8,651    |  
|Deferred revenue                                                                                                                                                      |  |              | 5,075    |   |      |   | 1,169    |  
|Other current liabilities                                                                                                                                             |  |              | 3,363    |   |      |   | 3,862    |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total current liabilities                                                                                                                                             |  |              | 28,643   |   |      |   | 19,618   |  
|Long-term debt and capital lease obligations, less current portion                                                                                                    |  |              | 188      |   |      |   | 10,717   |  
|Pension obligations                                                                                                                                                   |  |              |         |   |      |   | 5,313    |  
|Other long term liabilities                                                                                                                                           |  |              | 928      |   |      |   | 1,020    |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total liabilities                                                                                                                                                     |  | $            | 29,759   |   |      | $ | 36,668   |  
|                                                                                                                                                                      |  |             
|Commitments and Contingencies (Note 8)                                                                                                                                |  |              |          |   |      |   |          |  
|                                                                                                                                                                      |  |             
|Stockholders Equity:                                                                                                                                                 |  |              |          |   |      |   |          |  
|Preferred Stock                                                                                                                                                       |  |              |          |   |      |   |          |  
|Authorized shares  20,000,000 Series H Preferred Stock, no par value, $10 per share liquidation preference Issued and outstanding None
at December 31, 2003 and 2002 |  |              |         |   |      |   |         |  
|Common Stock, no par value                                                                                                                                            |  |              |          |   |      |   |          |  
|Authorized shares  50,000,000 Issued and outstanding  15,635,888 at December 31, 2003 and 14,025,702 at December 31,
2002                                           |  |              | 261,217  |   |      |   | 254,536  |  
|Accumulated other comprehensive income                                                                                                                                |  |              | 1,833    |   |      |   | (8,400   | )
|Deferred compensation                                                                                                                                                 |  |              |         |   |      |   | (569     | )
|Accumulated deficit                                                                                                                                                   |  |              | (209,680 | ) |      |   | (185,047 | )
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total stockholders equity                                                                                                                                            |  |              | 53,370   |   |      |   | 60,520   |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  
|Total liabilities and stockholders equity                                                                                                                            |  | $            | 83,129   |   |      | $ | 97,188   |  
|                                                                                                                                                                      |  |              |          |   |      |   |          |  



See accompanying notes
to the consolidated financial statements.



F-3



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##### Table of Contents

TRIKON TECHNOLOGIES, INC.



CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share data)



|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                       |  | Year Ended December 31, |        
|                                                       |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Revenues:                                              |  |                         |         |   |      |   |         |      |  |   |        |  
|Product sales                                          |  | $                       | 28,710  |   |      | $ | 32,765  |      |  | $ | 97,046 |  
|License revenues                                       |  |                         | 108     |   |      |   | 50      |      |  |   |       |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                       |  | $                       | 28,818  |   |      | $ | 32,815  |      |  | $ | 97,046 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|Costs and expenses:                                    |  |                         |         |   |      |   |         |      |  |   |        |  
|Cost of goods sold                                     |  |                         | 21,086  |   |      |   | 24,490  |      |  |   | 51,749 |  
|Research and development                               |  |                         | 9,629   |   |      |   | 10,700  |      |  |   | 9,650  |  
|Selling, general and administrative                    |  |                         | 20,032  |   |      |   | 18,717  |      |  |   | 22,642 |  
|Settlement of pension liabilities and related expenses |  |                         | 3,542   |   |      |   | 818     |      |  |   |       |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|                                                       |  |                         | 54,289  |   |      |   | 54,725  |      |  |   | 84,041 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|(Loss) Income from operations                          |  |                         | (25,471 | ) |      |   | (21,910 | )    |  |   | 13,005 |  
|Interest expense                                       |  |                         | (921    | ) |      |   | (1,197  | )    |  |   | (1,504 | )
|Interest income                                        |  |                         | 948     |   |      |   | 1,309   |      |  |   | 1,350  |  
|Foreign currency gains (losses)                        |  |                         | 573     |   |      |   | (2      | )    |  |   | 1,150  |  
|Other income                                           |  |                         | 474     |   |      |   |        |      |  |   | 681    |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|(Loss) income before income tax charge (benefit)       |  |                         | (24,397 | ) |      |   | (21,800 | )    |  |   | 14,682 |  
|Income tax charge (benefit)                            |  |                         | 236     |   |      |   | (2,165  | )    |  |   | 3,432  |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|Net (loss) income                                      |  | $                       | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250 |  
|Preferred dividend                                     |  |                         |        |   |      |   |        |      |  |   | 141    |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|Net (loss) income applicable to common shares          |  | $                       | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,109 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |        |  
|(Loss) earnings per share:                             |  |                         |         |   |      |   |         |      |  |   |        |  
|Basic                                                  |  | $                       | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.98   |  
|Diluted                                                |  | $                       | (1.77   | ) |      | $ | (1.57   | )    |  | $ | 0.88   |  
|                                                       |  |                         |        
|Average common shares used in the calculation  Basic  |  |                         | 13,928  |   |      |   | 12,533  |      |  |   | 11,281 |  
| Diluted                                              |  |                         | 13,928  |   |      |   | 12,533  |      |  |   | 12,658 |  



See accompanying notes
to the consolidated financial statements.



F-4



---

##### Table of Contents

TRIKON TECHNOLOGIES, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(In thousands)



|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|---------------------------------------- |  | ------------------------ | - |  | ------------ | ------ | -------------------- | ------ | ------ | ----------------------------------- | - | ------- | --------------------- | - | -------- | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                                         |  | Series H Preferred Stock |   |  | Common Stock |        | Accum- ulatedDeficit |        |        | AccumulatedotherComprehensiveIncome |   |         | Deferred Compensation |   |          | Total | 
|                                         |  | Shares                   |   |  | Amount       |        |                      | Shares |        | Amount                              |   |         |                       |  
|Balance at January 1, 2001               |  | 443                      |   |  | $            | 4,430  |                      |        | 11,710 |                                     | $ | 230,788 |                       | $ | (176,440 | )     |  | $ | (5,255 | ) |  | $ | (3,603 | ) |  | $ | 49,920  |  
|                                         |  |                          |   |  |              |        |                      |       
|Issuance of stock, net of issuance costs |  |                         |   |  |              |       |                      |        | 926    |                                     |   | 9,970   |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 9,970   |  
|Exercises of employee stock options      |  |                         |   |  |              |       |                      |        | 71     |                                     |   | 57      |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 57      |  
|Conversion of preferred stock            |  | (186                     | ) |  |              | (1,863 | )                    |        | 148    |                                     |   | 1,910   |                       |   | (97      | )     |  |   |       |   |  |   |       |   |  |   | (50     | )
|Redemption of preferred stock            |  | (269                     | ) |  |              | (2,692 | )                    |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | (2,692  | )
|Amortization of restricted stock         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   | 1,517  |   |  |   | 1,517   |  
|Currency translation Adjustments         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | (994   | ) |  |   |       |   |  |   | (994    | )
|Deficit on defined benefit plan          |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | (3,525 | ) |  |   |       |   |  |   | (3,525  | )
|Net income                               |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   | 11,250   |       |  |   |       |   |  |   |       |   |  |   | 11,250  |  
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive income                     |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 6,731   |  
|Preference dividend                      |  | 12                       |   |  |              | 125    |                      |        |       |                                     |   |        |                       |   | (125     | )     |  |   |       |   |  |   |       |   |  |   |        |  
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2001             |  |                         |   |  | $            |       |                      |        | 12,855 |                                     | $ | 242,725 |                       | $ | (165,412 | )     |  | $ | (9,774 | ) |  | $ | (2,086 | ) |  | $ | 65,453  |  
|                                         |  |                          |   |  |              |        |                      |       
|Issuance of stock, net of issuance costs |  |                         |   |  |              |       |                      |        | 1,093  |                                     |   | 11,736  |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 11,736  |  
|Exercises of employee stock options      |  |                         |   |  |              |       |                      |        | 78     |                                     |   | 75      |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 75      |  
|Amortization of restricted stock         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   | 1,517  |   |  |   | 1,517   |  
|Currency translation adjustments         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | 5,069  |   |  |   |       |   |  |   | 5,069   |  
|Deficit on defined benefit plan          |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | (3,695 | ) |  |   |       |   |  |   | (3,695  | )
|Net loss                                 |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   | (19,635  | )     |  |   |       |   |  |   |       |   |  |   | (19,635 | )
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                       |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | (18,261 | )
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2002             |  |                         |   |  | $            |       |                      |        | 14,026 |                                     | $ | 254,536 |                       | $ | (185,047 | )     |  | $ | (8,400 | ) |  | $ | (569   | ) |  | $ | 60,520  |  
|                                         |  |                          |   |  |              |        |                      |       
|Issuance of stock, net of issuance costs |  |                         |   |  |              |       |                      |        | 1,400  |                                     |   | 6,456   |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 6,456   |  
|Exercises of employee stock options      |  |                         |   |  |              |       |                      |        | 210    |                                     |   | 225     |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | 225     |  
|Amortization of restricted stock         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   | 569    |   |  |   | 569     |  
|Currency translation adjustments         |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | 3,013  |   |  |   |       |   |  |   | 3,013   |  
|Deficit on defined benefit plan          |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   | 7,220  |   |  |   |       |   |  |   | 7,220   |  
|Net loss                                 |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   | (24,633  | )     |  |   |       |   |  |   |       |   |  |   | (24,633 | )
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Comprehensive loss                       |  |                         |   |  |              |       |                      |        |       |                                     |   |        |                       |   |         |       |  |   |       |   |  |   |       |   |  |   | (14,400 | )
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  
|Balance at December 31, 2003             |  |                         |   |  | $            |       |                      |        | 15,636 |                                     | $ | 261,217 |                       | $ | (209,680 | )     |  | $ | 1,833  |   |  | $ |       |   |  | $ | 53,370  |  
|                                         |  |                          |   |  |              |        |                      |        |        |                                     |   |         |                       |   |          |       |  |   |        |   |  |   |        |   |  |   |         |  



See accompanying notes
to the consolidated financial statements.



F-5



---

##### Table of Contents

TRIKON TECHNOLOGIES, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                     |  | Year Ended December 31, |        
|                                                                                                     |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|Operating activities                                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Net (loss) income                                                                                    |  | $                       | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250  |  
|Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:   |  |                         |         |   |      |   |         |      |  |   |         |  
|Depreciation and amortization of plant, equipment, leasehold improvements, and demonstration systems |  |                         | 5,368   |   |      |   | 5,279   |      |  |   | 3,618   |  
|Gain on sale of property plant and equipment                                                         |  |                         | (505    | ) |      |   | (6      | )    |  |   | (681    | )
|Amortization of financing costs                                                                      |  |                         |        |   |      |   |        |      |  |   | 27      |  
|Amortization of deferred compensation                                                                |  |                         | 569     |   |      |   | 1,517   |      |  |   | 1,517   |  
|Net recognized pension fund obligation                                                               |  |                         |        |   |      |   |        |      |  |   | (152    | )
|Provision for loss on accounts receivable                                                            |  |                         | 41      |   |      |   | (96     | )    |  |   | (51     | )
|Changes in operating assets and liabilities:                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Accounts receivable                                                                                  |  |                         | (2,380  | ) |      |   | 10,923  |      |  |   | 9,813   |  
|Inventories (including demonstration systems)                                                        |  |                         | 5,084   |   |      |   | 1,431   |      |  |   | 8,496   |  
|Other current assets                                                                                 |  |                         | (2,184  | ) |      |   | 413     |      |  |   | 3,644   |  
|Accounts payable and other liabilities                                                               |  |                         | 3,989   |   |      |   | (1,247  | )    |  |   | (14,494 | )
|Income tax payable                                                                                   |  |                         | (48     | ) |      |   | (1,585  | )    |  |   | 1,011   |  
|Deferred revenue                                                                                     |  |                         | 3,906   |   |      |   | (3,937  | )    |  |   | (4,224  | )
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by operating activities                                                  |  |                         | (10,793 | ) |      |   | (6,943  | )    |  |   | 19,774  |  
|Investing Activities                                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Purchases of property, equipment and leasehold improvements                                          |  |                         | (1,481  | ) |      |   | (2,098  | )    |  |   | (4,578  | )
|Proceeds from sale of property, equipment and leasehold improvements                                 |  |                         | 1,682   |   |      |   | 107     |      |  |   | 1,008   |  
|Other assets and liabilities                                                                         |  |                         | (245    | ) |      |   | (1,688  | )    |  |   | (1,599  | )
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                |  |                         | (44     | ) |      |   | (3,679  | )    |  |   | (5,169  | )
|Financing Activities                                                                                 |  |                         |         |   |      |   |         |      |  |   |         |  
|Issuance of stock                                                                                    |  |                         | 6,681   |   |      |   | 11,811  |      |  |   | 10,027  |  
|Preferred stock dividend                                                                             |  |                         |        |   |      |   |        |      |  |   | (50     | )
|Redemption of preferred stock                                                                        |  |                         |        |   |      |   |        |      |  |   | (2,692  | )
|Redemption of 71/8% convertible debt                                                                 |  |                         |        |   |      |   |        |      |  |   | (1,505  | )
|Borrowings under bank credit lines                                                                   |  |                         |        |   |      |   |        |      |  |   | 21,450  |  
|Repayments of borrowings under bank credit lines                                                     |  |                         | (8,351  | ) |      |   | (8,050  | )    |  |   | (3,776  | )
|Payments on capital lease obligations                                                                |  |                         | (700    | ) |      |   | (663    | )    |  |   | (382    | )
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash (used in) provided by financing activities                                                  |  |                         | (2,370  | ) |      |   | 3,098   |      |  |   | 23,072  |  
|Effect of exchange rate changes in cash                                                              |  |                         | 2,296   |   |      |   | 5,414   |      |  |   | (86     | )
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents                                                 |  |                         | (10,911 | ) |      |   | (2,110  | )    |  |   | 37,591  |  
|Cash and cash equivalents at beginning of year                                                       |  |                         | 42,557  |   |      |   | 44,667  |      |  |   | 7,076   |  
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                                             |  | $                       | 31,646  |   |      | $ | 42,557  |      |  | $ | 44,667  |  
|                                                                                                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Supplemental Cash Flow Information                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for:                                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest                                                                                             |  | $                       | 921     |   |      | $ | 1,157   |      |  | $ | 1,046   |  
|Taxes (primarily foreign)                                                                            |  | $                       | 446     |   |      | $ | 1,133   |      |  | $ | 2,284   |  
|Non-cash investing and financing activities:                                                         |  |                         |         |   |      |   |         |      |  |   |         |  
|Equipment acquired under capital lease                                                               |  | $                       |        |   |      | $ | 182     |      |  | $ | 1,165   |  



See accompanying notes
to the consolidated financial statement





F-6



---

##### Table of Contents

Trikon Technologies Inc



Notes
to Consolidated Financial Statements



|1. | COMPANY INFORMATION, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET ANALYSIS
|-- | -------------------------------------------------------------------------------



Background



Trikon Technologies, Inc. and its subsidiaries (collectively the Company) operate in one segment, designing, manufacturing and servicing of
front-end wafer processing semiconductor-manufacturing equipment. These products are used for chemical and physical vapor deposition and for etch applications and are sold to semiconductor manufacturers worldwide.



The consolidated financial statements of the Company include the accounts of
its subsidiaries all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated upon consolidation. For fiscal 2003 the Company has identified, on the face of the statement of operations, foreign currency
gains and losses as a separate item after income/loss from operations but before income/loss before tax in the current period. Certain prior-year amounts have been reclassified to conform to current-year presentation.



Revenue Recognition



The Company derives its revenues from three sources  equipment sales, spare parts sales and the provision of services
and changed its revenue recognition policy in fiscal 2000 to adopt Staff Accounting Bulletin 101 issued by the staff of the Securities and Exchange Commission. The Company recognizes revenue when all the following criteria are met: persuasive
evidence of an arrangement exists, delivery has occurred or services rendered, the sales price is fixed or determinable and collectivity is reasonably assured. For transactions that consist of multiple deliverables the Company allocates revenue to
each of the deliverables based upon relative fair values and applies the revenue recognition criteria above to each element.



Revenues related to equipment sales are generally recognized upon shipment and transfer of title when the equipment has been pre-tested in the factory
under conditions similar to which the customer intends to operate the equipment and meets all of the customers defined specifications. For new customers, or new products, revenue is recognized only on final acceptance unless the customer attends and
approves the pre-testing procedures and the customer and the Company are satisfied that the performance of the equipment, once installed and operated, will continue to meet the customer-defined specifications. Equipment sold as demonstration or
evaluation units are recognized as revenue on transfer of title and either final acceptance, or satisfactory completion of testing to demonstrate that the equipment meets all the customer defined specifications. Equipment sales generally include the
provision of installation and commissioning services, which are not essential to the functionality of the equipment but have contractual payment terms linked to the final acceptance. The Company defers revenue recognition on the portion of revenue
contractually linked to final acceptance, or the fair value of the installation services, if greater, until after acceptance of the machine. Revenue related to spare parts is recognized on shipment and revenue related to service contracts is
recognized ratably over the duration of the contracts.



During
fiscal 2003 the Company entered into a contract to develop new equipment for a customer and we determined that the revenue associated with this transaction should be accounted for in accordance with SOP 81-1  Accounting for the
Performance of Construction-Type and Certain Production-type Contracts. The developed equipment was shipped to the customer in fiscal 2003, however significant development work will be required during fiscal 2004 and no revenue was recognized
with respect to this project in fiscal 2003. The full value of the contract has been deferred until such time as the Company can establish criteria to recognize the revenue under the percentage of completion method or alternatively on completion of
the contract. Deferred revenue includes $1.8 million in respect of this contract.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Use of Estimates



The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.



Inventories



Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value and consist of the following:



|                        |  |                |        |      |   |       
|----------------------- |  | -------------- | ------ | ---- | - | ------
|                        |  | December 31,  
|                        |  | 2003           |        | 2002
|                        |  | (In thousands)
|Customer service spares |  |                | 3,237  |      | $ | 4,327 
|Components              |  |                | 5,646  |      |   | 7,878 
|Work-in-process         |  |                | 6,374  |      |   | 7,065 
|Finished goods          |  |                |       |      |   | 1,216 
|                        |  |                |        |      |   |       
|                        |  | $              | 15,257 |      | $ | 20,486
|                        |  |                |        |      |   |       



Cash Equivalents



Cash equivalents represent short-term investments that are highly liquid,
are of limited credit risk and have original maturities of three months or less when purchased.



Property, plant and equipment



Property, plant and equipment is stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets (five years) or the lease term. Owned buildings are depreciated using
the straight-line method over 50 years.



The components of
property, plant and equipment are as follows:



|                                               |  |                |        |      |   |       
|---------------------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                               |  | December 31,  
|                                               |  | 2003           |        | 2002
|                                               |  | (In thousands)
|Land and buildings                             |  | $              |       |      | $ | 1,280 
|Machinery and equipment                        |  |                | 26,358 |      |   | 22,579
|Furniture and fixtures                         |  |                | 4,707  |      |   | 4,037 
|Leasehold improvements                         |  |                | 13,120 |      |   | 11,628
|                                               |  |                |        |      |   |       
|                                               |  |                | 44,185 |      |   | 39,524
|Less accumulated depreciation and amortization |  |                | 27,289 |      |   | 19,888
|                                               |  |                |        |      |   |       
|                                               |  | $              | 16,896 |      | $ | 19,636
|                                               |  |                |        |      |   |       



Cost of equipment
under capital leases included in property and equipment at December 31, 2003 and 2002 was $2,427,000 and $2,183,000 respectively, and accumulated amortization was $1,303,000 and $736,000, respectively. Amortization expense under these leases is
included in depreciation expense.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



During the year the Company disposed of an empty facility that had previously been its corporate and
operational headquarters. The sales proceeds, net of expenses, amounted to $1,682,000. As at the date of sale the net book value of the building was $1,208,000 resulting in a profit on disposal of $474,000, which is recorded as other income on the
face of the consolidated statement of operations.



The Company
records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired as defined by Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.



Demonstration Systems



Demonstration or evaluation systems are completed systems
located at certain strategic customer sites or at the Companys facilities. The Company provides these demonstration systems at no charge for a specified evaluation period. The customer pays all operating costs incurred during the evaluation
period. At the conclusion of the agreed upon evaluation period, provided that the equipment performs to required specifications, management expects that the customer, while not obligated to do so, will purchase the system. Demonstration systems are
stated at the lower of cost or estimated net realizable value and are depreciated on a straight-line method over four years, if the product is not sold after one year. Demonstration systems, net of depreciation, amounted to $2.8 million and $2.7
million at December 31, 2003 and 2002, respectively.



Accounting for Income
Taxes



The Company accounts for income taxes using the
liability method in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.



Stock-based Compensation



As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the Company has elected to continue to apply the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its employee stock option plan. The Company is generally not required under APB Opinion
No. 25 and related interpretations to recognize compensation expense in connection with its employee stock option plans, since stock options are granted at fair market value.



The Company has estimated the fair value of the options at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2003, 2002, and 2001, respectively: Risk-free interest rates of 2.66%, 2.46%, and 4.04%; a zero dividend yield in all three years; volatility factors of the expected market price of the Companys
Common Stock of 76.3%, 91.5% and 63.1% and an expected life of the options of 4.0 years, 3.8 years and 3.9 years. These assumptions resulted in weighted-average fair values of $4.36, $6.35, and $4.02 per share for stock options granted in 2003,
2002, and 2001, respectively.



The Black-Scholes option-pricing
model was developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. However, the Companys employee stock options have characteristics significantly different from those of traded
options; therefore, the Black-Scholes option-pricing model may not provide a reliable measure of the fair value of the Companys options.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



If compensation expense had been determined based on the grant date fair value as computed under the
Black-Scholes option pricing model for awards in fiscal 2001, 2002 and 2003 in accordance with the provisions of SFAS No. 123 and SFAS No. 148, the Companys net result and earnings per share would have been reduced to the pro forma amounts
indicated below:



|                                                                      |  |                                     |         |   |      |   |         |      |  |   |        |  
|--------------------------------------------------------------------- |  | ----------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                                                      |  | Years ended December 31,            |        
|                                                                      |  | 2003                                |         |   | 2002 |   |         | 2001 | 
|                                                                      |  | (In thousandsexcept per share data) |        
|Net (loss) income as reported                                         |  | $                                   | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250 |  
|Compensation expense included in determination of reported net income |  |                                     | 569     |   |      |   | 1,517   |      |  |   | 1,517  |  
|Pro forma compensation expense calculated on the fair value method    |  |                                     | (1,699  | ) |      |   | (2,871  | )    |  |   | (2,396 | )
|                                                                      |  |                                     |         |   |      |   |         |      |  |   |        |  
|Pro forma net (loss) income                                           |  | $                                   | (25,763 | ) |      | $ | (20,989 | )    |  | $ | 10,371 |  
|                                                                      |  |                                     |         |   |      |   |         |      |  |   |        |  
|Pro forma (loss) earnings per common share:                           |  |                                     |         |   |      |   |         |      |  |   |        |  
|Basic                                                                 |  | $                                   | (1.85   | ) |      | $ | (1.67   | )    |  | $ | 0.92   |  
|Diluted                                                               |  | $                                   | (1.85   | ) |      | $ | (1.67   | )    |  | $ | 0.82   |  



Research and Development Costs



Research and development costs are expensed as incurred.



Shipping and Handling Costs



Shipping and handling costs are expensed as incurred within cost of goods
sold.



Foreign Currency Translation



The functional currency of most of the Companys foreign subsidiaries
is the local currency. The Company translates the assets and liabilities of its foreign subsidiaries at the rate of exchange in effect at the balance sheet date and translates the statement of operations items at the average exchange rate for the
year. Translation adjustments are recorded as a component of stockholders equity on the line item Other Comprehensive Income in the consolidated balance sheet. Transaction gains and losses, other than those that relate to
transactions deemed to be of a long-term nature, are recognized in earnings.



Prepaid and other current assets



The
components of prepaid and other current assets are as follows:



|               |  |                |       |      |   |      
|-------------- |  | -------------- | ----- | ---- | - | -----
|               |  | December 31,  
|               |  | 2003           |       | 2002
|               |  | (In thousands)
|Prepayments    |  | $              | 798   |      | $ | 739  
|Deferred costs |  |                | 3,301 |      |   | 496  
|Other          |  |                | 756   |      |   | 1,436
|               |  |                |       |      |   |      
|Total          |  | $              | 4,855 |      | $ | 2,671
|               |  |                |       |      |   |      



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Other current liabilities



The components of other current liabilities are as follows:



|                  |  |                |       |      |   |      
|----------------- |  | -------------- | ----- | ---- | - | -----
|                  |  | December 31,  
|                  |  | 2003           |       | 2002
|                  |  | (In thousands)
|Customer deposits |  | $              | 1,095 |      | $ | 2,403
|Payroll taxes     |  |                | 1,326 |      |   | 667  
|Income taxes      |  |                | 133   |      |   | 164  
|Other             |  |                | 809   |      |   | 628  
|                  |  |                |       |      |   |      
|Total             |  | $              | 3,363 |      | $ | 3,862
|                  |  |                |       |      |   |      



Warranty expense



Generally the Companys products are sold with a standard warranty the
period of which varies from 12 to 24 months, depending on a number of factors including the specific equipment purchased. The Company accounts for the estimated warranty cost as a charge to cost of sales at the time it recognizes revenue. The
warranty cost is based upon historic product performance and is based on a rolling 12-month average historic cost per machine per warranty month outstanding.



Changes in the Companys product warranty liability during the year ended December 31, 2003 were as follows (in thousands):



|                           |  |   |        |  
|-------------------------- |  | - | ------ | -
|Balance, January 1, 2003   |  | $ | 1,426  |  
|Provisions for warranty    |  |   | 814    |  
|Consumption of reserves    |  |   | (1,090 | )
|Translation adjustment     |  |   | 135    |  
|                           |  |   |        |  
|Balance, December 31, 2003 |  | $ | 1,285  |  
|                           |  |   |        |  



2. RECENT ACCOUNTING PRONOUNCEMENTS



Statement of Financial Accounting Standards No.
(SFAS) 143, Accounting for Asset Retirement Obligations, addresses the accounting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement is
effective for financial years commencing after June 15, 2002 and the adoption of this statement did not have an effect on the Companys financial position or results of operations.



In June 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The statement changes the measurement and timing of recognition for exit costs, including restructuring charges, and is effective for any such activities initiated after December 31, 2002. It has no
effect on charges recorded for exit activities begun prior to December 31, 2002. The adoption of this statement did not have an effect on the Companys financial position or results of operations.



SFAS No. 148, Accounting for Stock Based Compensation  Transition
and Disclosure amends SFAS No. 123, Accounting for Stock-Based Compensation, and provides for additional disclosures relating to the pro forma effects of fair value based accounting when accounting is based upon the provisions of
APB Opinion No. 25, Accounting for Stock Issued to Employees. The Company has included the additional disclosures required by this standard in note 1 to these consolidated financial statements.



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (SFAS 149),
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement amends SFAS 133 to provide clarification on the financial accounting and reporting of derivative instruments and hedging activities and requires
contracts with similar characteristics to be accounted for on a comparable basis. The adoption of this statement did not have an effect on the Companys financial position or results of operations.



In May 2003, the FASB issued Statement of Financial Accounting Standards No.
150 (SFAS 150), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 establishes standards on the classification and measurement of financial instruments with characteristics of both
liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003. The adoption of this statement did not have an effect on the Companys financial position or results of operations.



In November 2002, the FASB issued Financial Interpretation No. 45 (FIN 45)
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This Interpretation elaborates on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. For product warranties, instead of disclosing the maximum potential amount of future payments under the guarantee, a guarantor is required to disclose its accounting policy and methodology used in determining its liability for
product warranties as well as a tabular reconciliation of the changes in the guarantors product warranty liability for the reporting period. The Company has included the additional disclosures required by this interpretation in note 1 to these
consolidated financial statements.



In January 2003, the
Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. FIN 46 provides guidance on: 1) the identification of entities for
which control is achieved through means other than through voting rights, known as variable interest entities (VIEs); and 2) which business enterprise is the primary beneficiary and when it should consolidate a VIE. This new requirement
for consolidation applies to entities: 1) where the equity investors (if any) do not have a controlling financial interest; or 2) whose equity investment at risk is insufficient to finance that entitys activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires that both the primary beneficiary and all other enterprises with a significant variable interest in a VIE make additional disclosures. FIN 46 is effective for all new
VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. Certain disclosures are
effective immediately. The Company has implemented FIN 46 during the fourth fiscal quarter of 2003, however, as the Company does not have any VIEs the Companys implementation did not have an effect on the Companys financial condition or
results of operations.



3. SEGMENT, GEOGRAPHIC INFORMATION AND MAJOR
CUSTOMERS



The Company operates in one business segment:
designing, manufacturing and servicing of front-end wafer processing semiconductor-manufacturing equipment. All products and services are marketed within the geographic regions in which the Company operates. The Companys current products and
services qualify for aggregation under SFAS 131 Disclosures about Segments of an Enterprise and Related Information, as its products are manufactured and distributed in the same manner, have similar gross margins and are sold to the same
customer base.



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



The Companys revenue by geographic area to unaffiliated customers was as follows:



|              |  |                         |        |      |   |        |  |   |       
|------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|              |  | Year Ended December 31,
|              |  | 2003                    |        | 2002 |   | 2001  
|              |  | (In thousands)         
|North America |  | $                       | 11,155 |      | $ | 10,728 |  | $ | 32,095
|Europe        |  |                         | 16,278 |      |   | 21,112 |  |   | 57,536
|Asia          |  |                         | 1,385  |      |   | 975    |  |   | 7,415 
|              |  |                         |        |      |   |        |  |   |       
|Total         |  | $                       | 28,818 |      | $ | 32,815 |  | $ | 97,046
|              |  |                         |        |      |   |        |  |   |       



Sales between
geographic regions are accounted for at prices that provide a profit and are in accordance with the rules and regulations of the respective governing bodies. The geographic locations of the Companys assets are as follows:



|                         |  |              |        |      |   |       
|------------------------ |  | ------------ | ------ | ---- | - | ------
|                         |  | December 31,
|                         |  | 2003         |        | 2002
|Long lived assets:       |  |              |        |      |   |       
|North America            |  | $            | 28     |      | $ | 42    
|Europe                   |  |              | 16,850 |      |   | 19,551
|Asia                     |  |              | 18     |      |   | 43    
|                         |  |              |        |      |   |       
|                         |  | $            | 16,896 |      | $ | 19,636
|                         |  |              |        |      |   |       
|All identifiable assets: |  |              |        |      |   |       
|North America            |  | $            | 8,776  |      | $ | 6,656 
|Europe                   |  |              | 73,925 |      |   | 90,158
|Asia                     |  |              | 428    |      |   | 374   
|                         |  |              |        |      |   |       
|                         |  | $            | 83,129 |      | $ | 97,188
|                         |  |              |        |      |   |       



The Companys
main facility is based in the United Kingdom and most of the Companys products are shipped directly from the United Kingdom to the end geographic region. During the years ended December 31, 2003, 2002 and 2001 export sales of the Company
originating from the United States were $256,000, $2,380,000 and $5,860,000 respectively.



Total revenue includes amounts from certain individual customers that exceed 10% of total revenue. Revenue from three customers represented 16%, 13% and 10% each, of total revenue for the year ended December 31, 2003.
Revenue from one customer represented 11% of total revenue for the year ended December 31, 2002. Revenue from two customers represented 17% and 15% each of total revenue for the year ended December 31, 2001.



4. COMPREHENSIVE (LOSS) INCOME



Comprehensive (loss) income is comprised of net (loss) income, provisions
for unfunded accumulated benefit obligations with respect to the Companys defined benefit pension plan and currency translation losses as follows:



|                                         |  |                         |         |   |      |   |         |      |  |   |        |  
|---------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                         |  | Year ended December 31, |        
|                                         |  | 2003                    |         |   | 2002 |   |         | 2001 | 
|                                         |  | (In thousands)          |        
|Net (loss) income                        |  | $                       | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250 |  
|Pension plan obligations                 |  |                         | 7,220   |   |      |   | (3,695  | )    |  |   | (3,525 | )
|Foreign currency translation adjustments |  |                         | 3,013   |   |      |   | 5,069   |      |  |   | (994   | )
|                                         |  |                         |         |   |      |   |         |      |  |   |        |  
|Comprehensive (loss) income              |  | $                       | (14,400 | ) |      | $ | (18,261 | )    |  | $ | 6,731  |  
|                                         |  |                         |         |   |      |   |         |      |  |   |        |  



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Accumulated other comprehensive income comprises:



|                                         |  |                |       |      |   |        |      |  |   |        |  
|---------------------------------------- |  | -------------- | ----- | ---- | - | ------ | ---- |  | - | ------ | -
|                                         |  | December 31,   |      
|                                         |  | 2003           |       | 2002 |   |        | 2001 | 
|                                         |  | (In thousands) |      
|Foreign Currency translation adjustments |  | $              | 1,833 |      | $ | (1,180 | )    |  | $ | (6,249 | )
|Pension plan obligations                 |  |                |      |      |   | (7,220 | )    |  |   | (3,525 | )
|                                         |  |                |       |      |   |        |      |  |   |        |  
|Total                                    |  | $              | 1,833 |      | $ | 8,400  |      |  | $ | 9,774  |  
|                                         |  |                |       |      |   |        |      |  |   |        |  



5. EARNINGS PER SHARE



The following table sets forth the computation of basic
and diluted earnings per share.



|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|--------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------ | -
|                                              |  | Year ended December 31 |        
|                                              |  | 2003                   |         |   | 2002 |   |         | 2001 | 
|                                              |  | (In thousands)         |        
|Numerator:                                    |  |                        |         |   |      |   |         |      |  |   |        |  
|                                              |  |                        |        
|Net (loss) income                             |  | $                      | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,250 |  
|Dividend applicable to Preferred Stock        |  |                        |        |   |      |   |        |      |  |   | 141    |  
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|Net (loss) income applicable to common shares |  | $                      | (24,633 | ) |      | $ | (19,635 | )    |  | $ | 11,109 |  
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|Denominator:                                  |  |                        |         |   |      |   |         |      |  |   |        |  
|For basic earnings per share:                 |  |                        |         |   |      |   |         |      |  |   |        |  
|Weighted average shares outstanding           |  |                        | 14,351  |   |      |   | 13,682  |      |  |   | 12,430 |  
|Restricted shares                             |  |                        | (423    | ) |      |   | (1,149  | )    |  |   | (1,149 | )
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|                                              |  |                        | 13,928  |   |      |   | 12,533  |      |  |   | 11,281 |  
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|For diluted earnings per share:               |  |                        |         |   |      |   |         |      |  |   |        |  
|Adjusted weighted average shares outstanding  |  |                        | 13,928  |   |      |   | 12,533  |      |  |   | 11,281 |  
|Effect of dilutive securities:                |  |                        |         |   |      |   |         |      |  |   |        |  
|Employee stock options                        |  |                        |        |   |      |   |        |      |  |   | 463    |  
|Restricted shares                             |  |                        |        |   |      |   |        |      |  |   | 914    |  
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  
|                                              |  |                        | 13,928  |   |      |   | 12,533  |      |  |   | 12,658 |  
|                                              |  |                        |         |   |      |   |         |      |  |   |        |  



Basic and diluted
earnings per share are calculated in accordance with SFAS128 earnings per share, which specifies the computation, presentation and disclosure requirements for earnings per share. The weighted-average number of shares used to calculate
basic earnings per share for each period excludes, prior to their vesting, 1,149,281 unvested shares of restricted common stock issued to the Companys Chairman of the Board in 1998. The restricted stock vested 100% on May 14, 2003.



The computation of diluted net loss per share for the years ended December
31, 2003 and 2002 excluded the impact of all outstanding options to purchase shares of common stock because such impact would be antidilutive due to the Companys net loss for those years.



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



6. INCOME TAXES



The income tax (credit) charge consists of the following:



|                   |  |                        |     |      |   |        |      |  |   |      
|------------------ |  | ---------------------- | --- | ---- | - | ------ | ---- |  | - | -----
|                   |  | Year Ended December 31
|                   |  | 2003                   |     | 2002 |   |        | 2001
|                   |  | (In thousands)        
|Current:           |  |                        |     |      |   |        |      |  |   |      
|Federal            |  | $                      |    |      | $ |       |      |  | $ |     
|State              |  |                        | 69  |      |   | 109    |      |  |   | 110  
|Foreign            |  |                        | 167 |      |   | (1,672 | )    |  |   | 2,720
|                   |  |                        |     |      |   |        |      |  |   |      
|                   |  | $                      | 236 |      | $ | (1,563 | )    |  |   | 2,830
|Deferred (foreign) |  |                        |    |      |   | (602   | )    |  |   | 602  
|                   |  |                        |     |      |   |        |      |  |   |      
|Total              |  | $                      | 236 |      | $ | (2,165 | )    |  | $ | 3,432
|                   |  |                        |     |      |   |        |      |  |   |      



A reconciliation of
income taxes (credited) charged at the federal statutory rate (35% in all years) to actual income tax (credit) expense is as follows:



|                                                             |  |                        |    |  |       |    |  |      |  
|------------------------------------------------------------ |  | ---------------------- | -- |  | ----- | -- |  | ---- | -
|                                                             |  | Year Ended December 31 |   
|                                                             |  | 2003                   |    |  | 2002  |    |  | 2001 |  
|Income taxes at the statutory federal income tax rate        |  | (35.0                  | )% |  | (35.0 | )% |  | 35.0 | %
|                                                             |  |                        |   
|Foreign taxes at lower rates than the federal statutory rate |  | 5.1                    |    |  | 4.4   |    |  | (3.0 | )
|                                                             |  |                        |    |  |       |    |  |      |  
|                                                             |  | (29.9                  | )  |  | (30.6 | )  |  | 32.0 |  
|State taxes payable                                          |  | 0.3                    |    |  | 0.5   |    |  | 0.7  |  
|Effect of stock compensation amortization                    |  | (4.4                   | )  |  | 2.4   |    |  | 3.6  |  
|Research and development credit                              |  |                       |    |  | (0.8  | )  |  |     |  
|                                                             |  |                        |   
|Change in valuation reserve due to:                          |  |                        |    |  |       |    |  |      |  
|Foreign net operating losses utilized in the period          |  |                       |    |  |      |    |  | (6.4 | )
|Foreign net operating losses generated in the period         |  | 30.4                   |    |  | 24.7  |    |  |     |  
|Domestic net operating losses utilized in the period         |  | 5.4                    |    |  | 1.7   |    |  |     |  
|Other                                                        |  |                       |    |  | (1.0  | )  |  | (3.6 | )
|Other                                                        |  | (0.9                   | )  |  | (6.8  | )  |  | (2.9 | )
|                                                             |  |                        |    |  |       |    |  |      |  
|                                                             |  | 0.9                    | %  |  | (9.9  | )% |  | 23.4 | %
|                                                             |  |                        |    |  |       |    |  |      |  



The (loss) income
before income taxes of the Companys non-US subsidiaries for the years ended December 31, 2003, 2002 and 2001 was approximately $(24,250,000), (19,129,000) and $14,415,000 respectively.



As of December 31, 2003, the Company had federal net operating loss carry
forwards of approximately $26.1 million (adjusted for the estimated effects of a change of ownership under s382 of the internal revenue code of 1986, as revised (the code)) and California operating loss carry forwards of $18.4 million.
The net operating loss carry forwards will expire at various dates beginning in years 2008 through 2023, if not utilized.



At December 31, 2003 the Company also had United Kingdom net operating loss carry forwards of approximately $46.6 million, which can be offset against
future profits arising from the same business indefinitely.



Utilization of the net operating losses and credits that arose prior to the change of ownership, under the code, is subject to a substantial annual limitation. This is due to limitations provided by the code and similar state provisions.
The annual limitation may result in the expiration of net operating losses before utilization.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Net undistributed earnings from foreign subsidiaries at December 31, 2003, on which no U.S. tax has
been provided, amounted to approximately $70.8 million. The net undistributed earnings are intended to finance local operating requirements. Accordingly, an additional United States tax provision has not been made on these earnings.



Significant components of the Companys deferred tax liabilities and
assets are as follows at December 31:



|                                                       |  |                |         |   |      |   |         |  
|------------------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                       |  | December 31,   |        
|                                                       |  | 2003           |         |   | 2002 |  
|                                                       |  | (In thousands) |        
|Deferred tax assets:                                   |  |                |         |   |      |   |         |  
|Domestic:                                              |  |                |         |   |      |   |         |  
|Allowances and accruals not deducted for current taxes |  | $              | 79      |   |      | $ | 54      |  
|Net operating loss carry forwards                      |  |                | 10,485  |   |      |   | 9,460   |  
|Foreign:                                               |  |                |         |   |      |   |         |  
|Allowances and accruals not deducted for current taxes |  |                | 530     |   |      |   | 488     |  
|Net operating loss carry forwards                      |  |                | 13,981  |   |      |   | 5,519   |  
|                                                       |  |                |         |   |      |   |         |  
|                                                       |  |                | 25,075  |   |      |   | 15,521  |  
|Less valuation reserve                                 |  |                | (24,582 | ) |      |   | (14,126 | )
|                                                       |  |               
|Deferred tax liabilities:                              |  |                |         |   |      |   |         |  
|Domestic                                               |  |                |        |   |      |   |        |  
|Foreign:                                               |  |                |         |   |      |   |         |  
|Depreciation                                           |  |                | (367    | ) |      |   | (883    | )
|Other                                                  |  |                | (126    | ) |      |   | (512    | )
|                                                       |  |                |         |   |      |   |         |  
|Net deferred tax asset (liability)                     |  | $              |        |   |      | $ |        |  
|                                                       |  |                |         |   |      |   |         |  



In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is not more likely than not that the Company will realize
the benefits of these deductible differences, and thus has recorded a valuation allowance against the entire deferred tax asset.



7. LONG-TERM DEBT



Long-term debt includes the following:



|                          |  |                |        |      |   |       
|------------------------- |  | -------------- | ------ | ---- | - | ------
|                          |  | December 31,  
|                          |  | 2003           |        | 2002
|                          |  | (In thousands)
|Bank debt                 |  | $              | 11,188 |      | $ | 18,112
|Capital lease obligations |  |                | 736    |      |   | 1,256 
|                          |  |                |        |      |   |       
|Total                     |  |                | 11,924 |      |   | 19,368
|Less current portion      |  |                | 11,736 |      |   | 8,651 
|                          |  |                |        |      |   |       
|Long term portion         |  | $              | 188    |      | $ | 10,717
|                          |  |                |        |      |   |       



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Bank Debt



During the year ended December 31, 2001, the Company entered into a three-year term loan facility of £15 million (approximately $26.9 million at
year-end exchange rates) from a British bank. The balance outstanding was 6,250,000 British pounds at December 31, 2003 (approximately $11.2 million) compared to 11,250,000 million British pounds at December 31, 2002 (approximately $20.1 million).
The term loan bears interest at the three month London Interbank Borrowing Rate (LIBOR) plus 1.25% (rate of 5.26% at December 31, 2003) per annum and also carries no prepayment penalties. This loan was repaid by the Company on January 5, 2004.



In July 2003 the Company entered into a two-year revolving
credit facility for 5 million British pounds (approximately $9.0 million at December 31, 2003 exchange rate) (2003 facility). Interest on the 2003 facility, will be incurred at the London Interbank rate (LIBOR) plus 1.75% for borrowings
in British pounds and foreign currency at the Banks short-term offered rate plus 1%. No amounts are outstanding under the 2003 facility on December 31, 2003.



The 2003 facility includes financial covenants that requires the Company to maintain a consolidated net worth of not less than $45 million, and that the
interest expense on the loan cannot exceed 70,000 British pounds in any one fiscal quarter. Based upon the interest rate on the 2003 facility at December 31, 2003 this covenant does not restrict our ability to use this facility. In March 2004 by way
of amendment letter, the covenant to maintain a consolidated net worth of not less than $45 million was changed to the reduced amount of not less than $40 million.



The Company also has an overdraft (credit) facility with the same bank of up to 1.5 million British pounds for use against
standby letters of credit and guarantees (approximately $2.7 million at the year end exchange rate). No amount was outstanding under this facility as at December 31, 2003 and 2002.



8. COMMITMENTS AND CONTINGENCIES



Leases:



The Company leases certain equipment under capital leases. The Company also leases its offices, manufacturing facilities and certain equipment under non-cancelable operating lease agreements. Certain leases are
subject to escalation clauses based on applicable inflation indexes.



Future minimum lease payments under capital leases and non-cancelable operating leases with initial terms of one year or more consisted of the following at December 31, 2003:



|                                                                                     |  |                |     |                 |   |      
|------------------------------------------------------------------------------------ |  | -------------- | --- | --------------- | - | -----
|                                                                                     |  | CapitalLeases  |     | OperatingLeases
|                                                                                     |  | (In thousands)
|2004                                                                                 |  | $              | 635 |                 | $ | 1,770
|2005                                                                                 |  |                | 212 |                 |   | 1,275
|2006                                                                                 |  |                |    |                 |   | 1,151
|2007                                                                                 |  |                |    |                 |   | 1,094
|2008                                                                                 |  |                |    |                 |   | 1,087
|                                                                                     |  |                |     |                 |   |      
|                                                                                     |  |                | 847 |                 | $ | 6,377
|                                                                                     |  |                |     |                 |   |      
|Less amounts representing imputed interest                                           |  |                | 111 |                 |   |      
|                                                                                     |  |                |     |                 |   |      
|Present value of net minimum lease payments, including amounts classified as current |  | $              | 736 |                 |   |      
|                                                                                     |  |                |     |                 |   |      



Rental expense for
operating leases was $2.0 million, $1.8 million and $1.7 million for the years ended December 31, 2003, 2002, and 2001, respectively.



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##### Table of Contents

Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Contingencies:



In the ordinary course of business the Company is involved with various types of claims and legal proceedings, which may result in litigation, or other
legal proceedings. The Company does not anticipate that any of these proceedings will have a material adverse effect on the Companys financial position, cash flow or results of operations.



9. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK



The Companys financial instruments consist primarily of cash, cash
equivalents, accounts receivable, accounts payable and capital lease obligations. The carrying amounts at December 31, 2003 of these financial instruments approximates their fair value,



The Company from time to time enters into foreign exchange contracts of a short-term nature (typically 1 month or less) that
are generally matched to the estimated collection of accounts receivable. These contracts are generally for the sale of U.S. Dollars into British pounds. No contracts were outstanding at December 31, 2003 or 2002. The Company has not entered into
any other derivative financial instrument and does not hold or use financial instruments for speculative purposes.



The Companys exposure to concentration of credit risk arises primarily from its accounts receivables. Accounts receivable consist primarily of
amounts due from original equipment manufacturers, end use customers, and distributors within the Companys industry. At December 31, 2003 three customers represented 18%, 16%, and 14% of the total accounts receivable. At December 31, 2002
three customers represented 37%, 12% and 12% of the total accounts receivable. The Company performs credit evaluations and analysis of amounts due from its customers; however, the Company does not require collateral. Credit losses have been within
managements expectations and an estimate of un-collectible accounts has been provided for in the financial statements.



10. STOCKHOLDERS EQUITY



Common Stock



The Company has reserved shares of common stock for future issuance at December 31, 2003 as follows:



|                                                |  |          
|----------------------------------------------- |  | ---------
|Shares reserved for stock option plans          |  | 1,857,633
|Shares reserved for outstanding warrants        |  | 495,093  
|                                                |  |          
|Total common stock reserved for future issuance |  | 2,352,726
|                                                |  |          



Preferred Stock



The Board of Directors has the authority to issue up to 20,000,000 shares of
Preferred Stock in one or more series with rights, preferences, privileges and restrictions to be determined at the Board of Directors discretion.



Restricted Stock



In connection with the consummation of a capital reorganization in fiscal 1998, the Company issued 1,149,281 shares of restricted Common Stock to the
Companys Chairman of the Board which was subject to certain vesting conditions. This stock vested on May 14, 2003. The restricted stock was valued at $7.6 million based upon average traded prices immediately after the grant. This amount has
been accounted for as an addition to Common Stock and as deferred compensation within the Statement of Shareholders Equity. The deferred compensation was amortized on a straight-line basis over a five-year period resulting in a charge against
operations of $0.6 million, $1.5 million and $1.5 million for the years ended December 31, 2003, 2002, and 2001, respectively.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Warrants



In connection with the sale of 925,930 common shares to an institutional investor in May 2001, the Company issued warrants for the purchase of 92,593
shares of common stock. The warrants are valid for four years and expire May 23, 2005. The warrants have an exercise price of $13.50. In the event that the volume weighted average market price exceeds $21.60 for any 30-day consecutive period, with a
minimum daily trading volume of 200,000 shares, the Company can force the exercise of the warrant.



In connection with the sale of 1,400,000 common shares to an institutional investor in October 2003, the company issued to that investor warrants for the
purchase of 350,000 shares of common stock (investor warrants) with an exercise price of $6.25 per share. In addition further warrants for the purchase of 52,500 shares of common stock (placement agent warrants) were issued
to the placement agent. The warrants expire October 22, 2007. The warrants may be redeemed at the option of the Company for $0.10 at any time after the first anniversary of the closing date provided that for any 20 trading days in a 30 day trading
period the closing market price exceeds $11.25 for the investor warrants, and $11.70 for the placement agent warrants, and the average daily trading volume of the Companys common stock exceeds 150,000 shares.



Stock options



In October 1996, the Company changed its Non-Qualified Employee Option Plan to an Incentive Stock Option Plan
(the Option Plan). At the Annual Meetings of Shareholders held on June 14, 1999, May 31, 2000 and May 15, 2001, the number of shares of Common Stock reserved for issuance under the Option Plan was increased from 887,000 to 1,050,000 then
to 1,500,000 and then to 2,250,000 respectively, at each of these dates. The Company also has a Directors Plan that initially provided for the issue of up to 50,000 shares of Common Stock to Non-Employee Directors. At the Annual Meetings of
Shareholders held on May 16, 2002, the number of shares of Common Stock reserved for issuance under the Option Plan was increased to 150,000. The Option Plans provide options to purchase shares of the Companys Common Stock for officers,
directors, and employees, at an exercise price equal to the fair market value on the date of grant as determined by the Board of Directors. The shares issued under the Option Plan and Directors plan shall become vested over periods up to five years
and have a maximum term of ten years.



A summary of the changes
in the status of options is as follows:



|                                 |  |                    |   |  |                      |  |                               |      
|-------------------------------- |  | ------------------ | - |  | -------------------- |  | ----------------------------- | -----
|                                 |  | OptionsOutstanding |   |  | Price Range PerShare |  | WeightedAveragePrice PerShare
|Outstanding at January 1, 2001   |  | 921,288            |   |  | 0.31 - 25.25         |  | $                             | 6.71 
|Granted                          |  | 197,970            |   |  | 9.44 - 12.10         |  | $                             | 10.82
|Cancelled                        |  | (49,666            | ) |  | 0.47 - 14.38         |  | $                             | 9.91 
|Exercised                        |  | (70,948            | ) |  | 0.47 -   6.25        |  | $                             | 0.80 
|                                 |  |                    |   |  |                      |  |                               |      
|Outstanding at December 31, 2001 |  | 998,644            |   |  | 0.31 - 25.25         |  | $                             | 7.78 
|Granted                          |  | 412,808            |   |  | 5.09 - 14.34         |  | $                             | 13.18
|Cancelled                        |  | (71,323            | ) |  | 1.25 - 14.81         |  | $                             | 12.39
|Exercised                        |  | (77,586            | ) |  | 0.47 -   1.41        |  | $                             | 0.97 
|                                 |  |                    |   |  |                      |  |                               |      
|Outstanding at December 31, 2002 |  | 1,262,543          |   |  | 0.31 - 25.25         |  | $                             | 9.70 
|Granted                          |  | 875,982            |   |  | 3.03 -   6.35        |  | $                             | 3.84 
|Cancelled                        |  | (104,164           | ) |  | 1.33 - 14.81         |  | $                             | 11.31
|Exercised                        |  | (206,878           | ) |  | 0.31 -   1.41        |  | $                             | 1.09 
|                                 |  |                    |   |  |                      |  |                               |      
|Outstanding at December 31, 2003 |  | 1,827,483          |   |  | 0.47 - 25.25         |  | $                             | 7.77 
|                                 |  |                    |   |  |                      |  |                               |      



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



At December 31, 2003, 2002 and 2001, 667,938, 656,429 and 473,199 shares were exercisable at
weighted-average prices of $9.76, $7.12 and $6.22, respectively. There were no options available for grant under the Option Plan as the plan expired on December 31, 2003 and 30,150 options were available under the Directors Plan at December 31,
2003.



Information regarding stock options outstanding as of
December 31, 2003 is as follows:



|                    |  |                     |  |                              |       |                                         |          |        |         |                              |   |      
|------------------- |  | ------------------- |  | ---------------------------- | ----- | --------------------------------------- | -------- | ------ | ------- | ---------------------------- | - | -----
|Price Range         |  | Options Outstanding |  | Options Exercisable         
|Shares              |  | Number ofShares     |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualLife |          | Shares |         | WeightedAverageExercisePrice
|From $0.47 to $9.99 |  | 1,078,606           |  | $                            | 3.60  |                                         | 8.65 yrs |        | 258,212 |                              | $ | 2.65 
|$10.00 to $25.25    |  | 748,877             |  | $                            | 13.78 |                                         | 7.19 yrs |        | 409,726 |                              | $ | 14.24



11. PENSIONS AND OTHER
POSTRETIREMENT BENEFITS



General



The Company operates multiple pension arrangements for its employees in the
various geographic locations in which it operates. With the exception of the United Kingdom defined benefit pension plan that was settled during the year, all these plans are defined contribution schemes operated in accordance with local rules



United Kingdom Defined Benefit Pension Plan



The Company operated a pension plan known as The Electrotech
Retirement Benefits Scheme (the Plan), which undertook to provide retirement benefits to participating employees based upon their final pensionable salary. The assets of the Plan are administered by the Trustees and do not belong
to the Company.



In March 2001, the Company decided to curtail
the Plan effective April 6, 2001. As a result, participants did not earn additional defined benefits for service after April 6, 2001. In July 2002 the Company entered into a definitive agreement with the trustees of the Plan to settle its
obligations with respect to the Plan. As a result of this agreement, the Company irrevocably paid to the Plan $1.7 million in 2002 and $1.4 million in 2003.



During 2003 benefits for all members of the Plan were either transferred to individual insurance policies or members chose to transfer their benefits out
of the Plan. As at December 31, 2003 the Plan has no members. The transfer payments were treated as settlements in accordance with SFAS No. 88 as the Company had eliminated the significant risks related to the long-term pension benefit obligation
during the year. The settlement charge to earnings was $3.1 million.



The trustees are in the process of completing the final administration elements of the windup and they are continuing to investigate a number of contingent liabilities, which will not expire until 2016. As part of the agreement to windup
the plan the Company has placed $179,000 in an escrow account for the benefit of the trustees in the event a successful claim is made on the trustees.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



Information required in respect of the net periodic benefit cost and related obligation determined in
accordance with US SFAS 87, 88 and 132 is given below. Assumptions used to determine the net periodic benefit cost and related benefit obligations are shown below.



|                                        |  |                         |   |  |      |   |  |      |  
|--------------------------------------- |  | ----------------------- | - |  | ---- | - |  | ---- | -
|                                        |  | Year Ended December 31, |  
|                                        |  | 2003                    |   |  | 2002 |   |  | 2001 |  
|Discount rate                           |  | 5.60                    | % |  | 5.60 | % |  | 6.00 | %
|Long term rate of return on plan assets |  | 6.80                    | % |  | 7.50 | % |  | 7.50 | %
|Increase in compensation levels         |  |                        |   |  |     |   |  | 5.00 | %



The actuarial
calculations in respect of the Plan assume a rate of increase of pensions in payment accrued after April 6, 2000 of 2.30%. Fixed pension increase rates apply for pension in respect of service before that date.



The components of net benefit expense (excluding settlement expense which is
included on the face of the income statement) are detailed in the table below.



|                                    |  |                         |      |   |      |   |      |      |  |   |      |  
|----------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                    |  | Year Ended December 31, |     
|                                    |  | 2003                    |      |   | 2002 |   |      | 2001 | 
|                                    |  | (In Thousands)          |     
|Service Cost                        |  | $                       |     |   |      | $ |     |      |  | $ | 82   |  
|Interest cost on benefit obligation |  |                         | 508  |   |      |   | 849  |      |  |   | 868  |  
|Expected return on plan assets      |  |                         | (433 | ) |      |   | (849 | )    |  |   | (826 | )
|Net amortization and deferral:      |  |                         |      |   |      |   |      |      |  |   |      |  
|- recognized and losses             |  |                         | 114  |   |      |   | 78   |      |  |   | 57   |  
|                                    |  |                         |      |   |      |   |      |      |  |   |      |  
|Net periodic benefit expense        |  | $                       | 189  |   |      | $ | 78   |      |  | $ | 181  |  
|                                    |  |                         |      |   |      |   |      |      |  |   |      |  



The funded status of
the Plan is summarized in the table below.



|                                            |  |                |   |      |   |        |  
|------------------------------------------- |  | -------------- | - | ---- | - | ------ | -
|                                            |  | December 31,   |  
|                                            |  | 2003           |   | 2002 |  
|                                            |  | (In thousands) |  
|Accrued benefit obligation at end of year   |  | $              |  |      | $ | 15,620 |  
|Projected benefit obligation at end of year |  |                |  |      |   | 15,620 |  
|Fair value of plan assets                   |  |                |  |      |   | 10,308 |  
|Benefit obligation in excess of plan assets |  |                |  |      |   | 5,312  |  
|Unrecognized prior service cost             |  |                |  |      |   |       |  
|Unrecognized net loss                       |  |                |  |      |   | 7,220  |  
|                                            |  |                |   |      |   |        |  
|Net amount recognized at end of year        |  | $              |  |      | $ | (1,908 | )
|                                            |  |                |   |      |   |        |  



The Company amortizes
the unrecognized net loss or gain as a component of pension costs, to the extent that the unrecognized net gain or loss exceeds 10% of the greater of the projected benefit obligation or the market related value of plan assets.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



The Company historically amortized this adjusted gain or loss over the remaining service life of the
participants of the plan. As the plan was curtailed in 2001 this basis of amortization became inappropriate and as a result in fiscal 2002 and 2003 the Company amortized the deficit over the remaining average life expectancy of the inactive
participants.



|                                           |  |                |         |   |      |   |        |  
|------------------------------------------ |  | -------------- | ------- | - | ---- | - | ------ | -
|                                           |  | December 31,   |        
|                                           |  | 2003           |         |   | 2002 |  
|                                           |  | (In thousands) |        
|Change in benefit obligation               |  |                |         |   |      |   |        |  
|Benefit obligation at start of year        |  | $              | 15,620  |   |      | $ | 13,753 |  
|Translation difference                     |  |                | 461     |   |      |   | 1,571  |  
|Interest cost                              |  |                | 508     |   |      |   | 849    |  
|Actuarial (gains) and losses               |  |                |        |   |      |   | 718    |  
|Impact of settlement                       |  |                | (16,589 | ) |      |   | (1,211 | )
|Benefits (paid)                            |  |                |        |   |      |   | (60    | )
|                                           |  |                |         |   |      |   |        |  
|Benefit obligation at end of year          |  | $              |        |   |      | $ | 15,620 |  
|                                           |  |                |         |   |      |   |        |  
|                                           | 
|                                           |  | December 31,   |        
|                                           |  | 2002           |         |   | 2001 |  
|                                           |  | (In thousands) |        
|Change in plan assets                      |  |                |         |   |      |   |        |  
|Fair value of plan assets at start of year |  | $              | 10,308  |   |      | $ | 10,331 |  
|Translation difference                     |  |                | 341     |   |      |   | 1,119  |  
|Actual return (loss) on plan assets        |  |                | 302     |   |      |   | (1,553 | )
|Contributions by employer                  |  |                | 1,401   |   |      |   | 1,925  |  
|Settlement                                 |  |                | (12,352 | ) |      |   | (1,454 | )
|Benefits (paid)                            |  |                |        |   |      |   | (60    | )
|                                           |  |                |         |   |      |   |        |  
|Fair value of plan assets at end of year   |  | $              |        |   |      | $ | 10,308 |  
|                                           |  |                |         |   |      |   |        |  



Defined Contribution pension
arrangements



In November 1993, the Company established a
401(k) plan covering substantially all of its U.S. employees. The 401(k) plan allows eligible employees to contribute up to 15% of their compensation. Company contributions are voluntary and at the discretion of the Board of Directors. There were no
contributions made by the Company for the years ended December 31, 2003, 2002, and 2001.



In the United Kingdom the Company also operates a defined contribution pension Plan, which allows for employees to contribute part of their compensation to the plan. The Company also makes contributions to this scheme
on behalf of the employees and total Company contributions for the years ended December 31, 2003, 2002 and 2001 amounted to $569,000, $689,000 and $588,000, respectively.



There are no other post retirement benefits provided to employees.



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Trikon Technologies Inc



Notes to Consolidated Financial Statements(Continued)



12. UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL DATA



|                         |  |                                        |        |   |            |   |        |       |  |   |        |   |  |   |        |   |  |   |         |  
|------------------------ |  | -------------------------------------- | ------ | - | ---------- | - | ------ | ----- |  | - | ------ | - |  | - | ------ | - |  | - | ------- | -
|                         |  | Quarter                                |        |   | FiscalYear |  
|                         |  | First                                  |        |   | Second     |   |        | Third |  |   | Fourth |   | 
|                         |  | In thousands, except per share amounts |       
|2003                     |  |                                        |        |   |            |   |        |       |  |   |        |   |  |   |        |   |  |   |         |  
|Net sales                |  | $                                      | 5,104  |   |            | $ | 6,016  |       |  | $ | 8,413  |   |  | $ | 9,285  |   |  | $ | 28,818  |  
|Gross margin             |  | $                                      | 764    |   |            | $ | 1,212  |       |  | $ | 2,543  |   |  | $ | 3,213  |   |  | $ | 7,732   |  
|Net loss                 |  | $                                      | (7,264 | ) |            | $ | (8,137 | )     |  | $ | (5,190 | ) |  | $ | (4,042 | ) |  | $ | (24,633 | )
|(Loss) per diluted share |  | $                                      | (0.56  | ) |            | $ | (0.60  | )     |  | $ | (0.37  | ) |  | $ | (0.26  | ) |  | $ | (1.77   | )
|                         |  |                                        |        |   |           
|2002                     |  |                                        |        |   |            |   |        |       |  |   |        |   |  |   |        |   |  |   |         |  
|Net sales                |  | $                                      | 8,000  |   |            | $ | 8,512  |       |  | $ | 4,506  |   |  | $ | 11,797 |   |  | $ | 32,815  |  
|Gross margin             |  | $                                      | 2,229  |   |            | $ | 3,045  |       |  | $ | 99     |   |  | $ | 2,952  |   |  | $ | 8,325   |  
|Net loss                 |  | $                                      | (3,783 | ) |            | $ | (4,676 | )     |  | $ | (7,073 | ) |  | $ | (4,103 | ) |  | $ | (19,635 | )
|(Loss) per diluted share |  | $                                      | (0.32  | ) |            | $ | (0.37  | )     |  | $ | (0.55  | ) |  | $ | (0.32  | ) |  | $ | (1.57   | )



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##### Table of Contents

SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS



Years ended December 31, 2003, 2002 and 2001



|                                                                |  |                              |         |                                           |   |            |                         |  |                                             |   |                        |   |        |  |   |        
|--------------------------------------------------------------- |  | ---------------------------- | ------- | ----------------------------------------- | - | ---------- | ----------------------- |  | ------------------------------------------- | - | ---------------------- | - | ------ |  | - | -------
|                                                                |  |                              |         | Additions                                 |   | Deductions |                         | 
|Description                                                     |  | Balance atBeginningof Period |         | Charged(Credited)  to Costs and  Expenses |   |            | Chargedto OtherAccounts |  | AmountCharged toReserve Net ofReinstatement |   | Balance atEnd ofPeriod
|Year ended December 31, 2003 Allowance for doubtful receivables |  | $                            | 149,000 |                                           | $ | 41,000     |                         |  | $                                           |  |                        | $ |       |  | $ | 190,000
|                                                                |  |                              |         |                                           |  
|Year ended December 31, 2002 Allowance for doubtful receivables |  | $                            | 53,000  |                                           | $ | 96,000     |                         |  | $                                           |  |                        | $ |       |  | $ | 149,000
|                                                                |  |                              |         |                                           |  
|Year ended December 31, 2001 Allowance for doubtful receivables |  | $                            | 104,000 |                                           | $ | (20,000    | )                       |  | $                                           |  |                        | $ | 31,000 |  | $ | 53,000 



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